(Refiles to fix typo in headline)

* U.S. stocks slump as fear of more bank failures grows

* Dollar rises versus yen after strong U.S. factory data

* Oil slips below $69 a barrel on equities, strong dollar

U.S. stocks fell sharply on Tuesday as growing concerns about the U.S. banking system and over whether a recent rally in equity markets is warranted drove investors to the relative safety of bonds and the dollar.

Oil prices fell as the economic concerns outweighed surprisingly bullish U.S. data: the manufacturing sector grew in August for the first time in 19 months, while pending home sales hits a two-year high in July.

Government bond prices on both sides of the Atlantic rose as falling stocks enhanced the allure of lower-risk safe-haven debt despite the fresh evidence supporting the view of a global economic recovery.

There are “new concerns about the health of the banking system, the number of bank failures that continues to grow by the day,” said Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey.

A sharp drop in bank stocks in late morning trading pulled the Dow industrials <.DJI> and the broad Standard & Poor’s 500 Index <.SPX> down 2 percent on fears of balance-sheet trouble in the U.S. financial sector.

The KBW bank index <.BKX> slipped 4.6 percent, with shares of Citigroup off 7.2 percent at $4.64 among top drags.

Three more U.S. banks failed last Friday, bringing the total to 84 so far this year, as the banking industry grapples with deteriorating loans on their books. Only 25 U.S. banks failed last year, while three failed in all of 2007.

The Federal Deposit Insurance Corp reported last week that its deposit insurance fund fell 20 percent to $10.4 billion at the end of the second quarter. Worries about the FDIC’s access to capital was also weighing on the market, Kenny said.

At 1:20 p.m. (1720 GMT), the Dow Jones industrial average <.DJI> was down 185.91 points, or 1.96 percent, at 9,310.37. The Standard & Poor’s 500 Index <.SPX> was down 21.34 points, or 2.09 percent, at 999.28. The Nasdaq Composite Index <.IXIC> was down 41.11 points, or 2.05 percent, at 1,967.95.

European equities closed sharply lower after mixed economic data, led lower by banks and commodity stocks. [ID:nL1126558]

The FTSEurofirst 300 <.FTEU3> index of top European shares ended down 1.8 percent at 954.15.

Net lending to Britons in July fell at its sharpest pace since records began in 1993, even as the number of mortgages approved rose to its highest since April 2008, Bank of England figures showed.

“The market is still overall concerned about the sustainability of the recovery,” said Orlando Green, interest rate strategist at Calyon, adding that government measures such as the cash for clunkers may have boosted the result.

“There are still doubts whether the economy can stand up by itself away from these government initiatives.”

U.S. crude oil for October delivery fell $1.21 to $68.75 per barrel, while London Brent crude dropped $1.13 to $68.52.

The dollar extended gains versus the euro to hit session highs on Tuesday as sharp losses in the U.S. stock market boosted the greenback’s safe-haven appeal.

The euro fell as low as $1.4221, and was last down 0.7 percent $1.4235 .

Copper prices slipped as investors worried about the pace of economic recovery in China, but they trimmed losses after the release of bullish U.S. manufacturing data.

The benchmark 10-year U.S. Treasury note was up 12/32 in price to yield 3.36 percent.

September Bund futures settled at 122.61, down 2 ticks from Monday, but it later traded up 23 ticks at 122.84.

A rebound in Chinese stocks <.SSEC> after Monday’s sell-off helped lift Asian shares. The MSCI index of Asia Pacific stocks traded outside Japan <.MIAPJ0000PUS> rose nearly 1 percent, while Japan’s Nikkei <.N225> closed up 0.4 percent.

Sept 1 (Reuters)

Nobel Prize winner: dollar reserve system is falling apart The Daily Crux

The calm before the financial storm The Daily Reckoning

How China is stealing our future Energy Tribune

The lie about high frequency trading liquidity The Market Ticker

Federal Reserve loses big lawsuit Zero Hedge

Insight: Do not fear falling bond prices FT

How big Swiss bank is protecting its clients against inflation Bloomberg

The prices are so cheap they’re stupid DailyWealth

Government claims that Goldman has stock manipulation software The American Prospect

But an early rally in U.S. stocks faded about midday in New York after Treasuries rose as investors swooped in to take advantage of sharp losses on Friday.

Oil rose to a 10-month high near $75 a barrel and other commodities also surged as optimism that major economies were pulling out of recession drove hopes of rebounding demand. .

Global stocks as measured by MSCI’s all-country world index <.MIWD00000PUS> rose 1.2 percent and was on track for a fifth straight session of gains.

The yen fell while the U.S. dollar slid against commodity currencies, such as the Australian and New Zealand dollars, as investors became more comfortable with riskier trades given the upbeat assessment of the world economy.

“Economic data is in favor of a stronger recovery than expected. We can be quite bullish on risky assets,” said Romain Boscher, head of equity management at Groupama Asset Management.

Euro zone industrial new orders in June rebounded 3.1 percent month-on-month, or more than expected, the European Union statistics office Eurostat said.

In the United States, economic activity improved again in July from extremely weak levels earlier this year, suggesting the recession is waning, a report from the Federal Reserve Bank of Chicago showed.

In addition, China’s latest data for July indicated that while growth was moderating after a strong second quarter, the recovery remained on track to achieve the government’s goal of 8 percent growth for the full year.

“The Chinese news was good and we had some positive news out of Europe as well,” said Rob Montefusco, a trader at Sucden Financial in London. “Technicals are pointing upwards.”

But U.S. stocks pared earlier gains. About 1 p.m. (1300 GMT), the Dow Jones industrial average <.DJI> was up 15.34 points, or 0.16 percent, at 9,521.30. The Standard & Poor’s 500 Index <.SPX> was up 1.11 points, or 0.11 percent, at 1,027.24. The Nasdaq Composite Index <.IXIC> was down 1.49 points, or 0.07 percent, at 2,019.41.

European shares hit their highest closing level in nearly 10 months, boosted by banks and miners.

The FTSEurofirst 300 <.FTEU3> index of top European shares ended 0.9 percent up at 975.19 points, the highest closing level since early November.

Banks were among top gainers, with DJ STOXX banking index <.SX7P> rising 1.8 percent.

Japan’s Nikkei average <.N225> jumped 3.4 percent, booosted by hopes for a global recovery and lifted by camera maker Canon Inc <7751.T> and other exporters.

Investors increased their risk-taking in the wake of stronger-than-expected U.S. existing home sales data and upbeat comments from Federal Reserve Chairman Ben Bernanke.

Copper prices rose to their highest in more than a week, helped by strong investment demand and bets the economic crisis is petering out.

Jesper Dannesbee, a senior commodities strategist at Societe General, said real demand has not improved that much it but will improve gradually through the year.

“This is follow through from Friday. There is a general appetite for risky assets driven by cheap money and lax monetary policy,” Dannesbee said.

Gold edged below $950 an ounce, under pressure from a firmer dollar, but remained rangebound as support from higher oil prices and investor demand prevented it falling further.

Spot gold was at $949.80 per ounce

U.S. Treasury debt prices rose, with the 30-year bond gaining more than a full point, as investors did some bargain hunting after Friday’s sharp losses and after the Federal Reserve bought government debt.

The benchmark 10-year U.S. Treasury note was up 19/32 in price to yield about 3.49 percent.

Benchmark euro zone government bonds ended flat as data bolstered the recovery view, but caution on its sustainability eased the selling pressure.

“The stock market has been the barometer for growth and potential inflation,” said Troy Buckner, managing principal of NuWave Investment Management in Morristown, New Jersey. “And yes. it’s been an extreme correlation between equity market movements and commodities, especially copper, aluminum and crude oil.”

But Buckner said that prices have climbed “too far too fast,” leading his firm to short crude and heating oil, while reducing long positions in copper and aluminum.

Euro zone government bonds ended flat as economic data bolstered the view the global economic recovery is under way but caution about the recovery eased selling pressure. Investors worried whether new U.S. debt issuance this week would be welcomed by buyers.

U.S. crude rose 51 cents to $74.40 a barrel.

Aug 24 (Reuters)

Oil hovered around $61 a barrel as worry about the strength of global fuel demand was offset by news of strong economic growth in China.

The U.S. dollar initially fell to a six-week low against major currencies after JPMorgan’s reported record investment banking and trading results, providing further evidence of recovery in the financial system, but weak U.S. manufacturing data and concern about the impact of the possible failure of U.S. lender CIT re-introduced a bid for safer-assets.

CIT’s talks about aid with the U.S. Treasury ended Wednesday night, leaving the lender to its own devices, and endangering the future of some of the one million customers of the lender to small businesses. U.S. Treasury debt prices rallied after three days of falls partly on a resulting flight-to-safety bid

A fall in a reading of the Federal Reserve Bank of Philadelphia’s index of business conditions in the U.S. Mid-Atlantic region to minus 7.5 in July from minus 2.2 the month before also helped push up bond prices.

The benchmark 10-year U.S. Treasury note was up 20/32 in price to yield 3.53 percent. The 2-year U.S. Treasury note was up 4/32 in price to yield 0.96 percent.

“We are in a difficult position at the moment because we are caught on the cusp between is this a sense of sustainable recovery or a possibility of a relapse?” said Richard McGuire, fixed income strategist at RBC Capital Markets in London.

“There’s no real convincing evidence yet on either side,” he said.

European shares hit a one-month closing high on improved sentiment following JPMorgan’s results and data that showed the number of U.S. workers claiming new jobless benefits fell last week.

But U.S. stocks faltered after a run-up this week that pushed the benchmark Standard & Poor’s 500 Index up 6.1 percent, the best three-day rally following a surge after U.S. equities hit a decade low in March.

Shortly after 1 p.m. (1700 GMT), the Dow Jones industrial average was up 3.18 points, or 0.04 percent, at 8,619.39. The Standard & Poor’s 500 Index was down 1.30 points, or 0.14 percent, at 931.38. The Nasdaq Composite Index was up 3.41 points, or 0.18 percent, at 1,866.31.

The FTSEurofirst 300 index of top European shares ended 0.4 percent higher at 866.81 points, fourth straight advancing session.

The number of U.S. workers filing new claims for jobless benefits fell last week to their lowest since January, but the seasonally adjusted government data was again distorted by earlier layoffs in the automotive industry.

“There’s a lot of conflicting data here, and I think that the market is reflecting that,” said Kim Caughey, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.

Asian shares across the region outside of Japan rose 1.3 percent to their highest since mid-June, while Japan’s benchmark Nikkei underperformed with a rise of 0.8 percent.

China reported economic growth quickened to 7.9 pct in the second quarter, beating forecasts.

The U.S. dollar was down against a basket of major currencies, with the U.S. Dollar Index off 0.02 percent at 79.299.

The euro was up 0.14 percent at $1.4124, while against the yen, the dollar was down 0.74 percent at 93.56.

Crude oil prices fell as investors tried to decide how high oil prices can rise given a still fragile global economy, said Mike Fitzpatrick, vice president at MF Global in New York.

U.S. light sweet crude oil fell 49 cents to $61.05 a barrel.

“$60 is the fulcrum balancing the price lever that tips whenever one contention or another is bolstered by news or economic data,” Fitzpatrick said.

Gold slipped as the dollar pared losses against the euro, with lacklustre demand for physical stocks of the metal also pressuring prices. Spot gold prices fell $1.20 to $937.25 an ounce.

NEW YORK, July 16 (Reuters)

Bond investors are no doubt breathing a sigh of relief. Now that investors are waking up to the fact that a recovery is not “around the corner” after all, the yield on 10-year T-Notes is dropping and bond prices are rising again.

As long as investors have an appetite for low-yielding Treasurys (10-year Notes were yielding 3.53% yesterday), the government will have a tough time pushing its “green shoots” fairytale.

We challenge even the best paid of President Obama’s economic spin doctors to find the silver lining in the following two recent data points. This from MoneyMorning.com:

1. Unemployment claims unexpectedly rose yesterday, as the number of US workers filing new claims jumped by 15,000 in the week ended June 20 to a seasonally adjusted 627,000, the Labor Department reported. The four-week moving average of initial claims, a less volatile measure, rose to 617,250 from 616,750, signaling the US job market is stagnant.
2. US gross domestic product (GDP) contracted at a 5.5% annual rate in the first quarter after plunging at a 6.3% pace in the fourth quarter of 2008, the Commerce Department said yesterday (Thursday). That means the US economy just went through its worst eight-month period in more than 60 years, according to MarketWatch. The government last month estimated GDP fell at a 5.7% pace in the quarter ended March 31.

If you in any doubt about the dangers of relying on the mainstream media for your economic and financial information, here’s how the BBC, Britain’s state-sponsored news agency, had this to say about the worst eight-month contraction of the US economy in more than 60 years.

US economy better than expected

The US economy shrank at an annualised rate of 5.5% in the first three months of 2009, better than previously thought, government figures show.

This is pitiful. And it’s clear evidence that governments and mainstream media outlets really do believe that people are too stupid to notice what’s going on in the economy. Don’t be suckered. This kind of nonsense is dangerous: listen to it and you could get wiped out as an investor.

If you want to know why the economy is in the ditch… and ain’t “bouncing back” anytime soon, look no further than this chart. It shows the total level of equity in household real estate from 1952 to 2009. (Hat tip, The Big Picture.)

For example, Health Systems Innovations, a healthcare consultant that has worked with private health insurers and the McCain presidential campaign, estimates that Senator Kennedy’s bill would cost $4 trillion over 10 years.

Should a healthcare plan be passed that even resembles anything like the current proposals, $2 trillion in costs would be a minor miracle.

A trillion here, a trillion there. Pretty soon, you’re talking about real money.

In my column last week, I offered three biotech stocks that should perform well, regardless of any healthcare reform plan that may be passed. As those reforms gather momentum, I’m going to explore a few more investments that should thrive, even in the face of a healthcare system overhaul…

Make Money From Bond Market Trouble

Despite the President’s popularity, he’s not likely to get everything he wants. Some sort of compromise is likely. But it’s safe to assume that the cost of the healthcare plan will be a 13-figure number (i.e. more than $1 trillion).

On a macroeconomic level, that would likely be inflationary and cause bond prices to decline. So if you’re a bond bear, here are two investments for you…

• UltraShort 20+ Year Treasury ProShares (NYSE: TBT): This ETF is not for the faint-hearted. It seeks to perform at twice the inverse results of the Lehman Brothers 20+ Year U.S. Treasury Index. So if the Index drops 5%, TBT should return rise about 10%.

• ProFunds Rising Rate Opportunity (RRPIX): This is a mutual fund that also seeks the inverse performance of the bond market. Its results aim to correspond to 125% of the inverse of the daily movement of the 30-year Treasury bond.

How To Buy Genzyme For $47.50

In last week’s column, I discussed the attractiveness of biotech companies that treat rare diseases.

But one of those names, Genzyme (Nasdaq: GENZ), had a major setback this week when it disclosed problems at one of its manufacturing facilities.

I believe these difficulties are temporary and I still like the company. But if you’d prefer to reduce your risk further, you can look at selling put options on GENZ at a lower strike price.

And when it comes to selling puts, look no further than Lee Lowell. He’s the master at this strategy and is currently riding a 100% winning streak since his Instant Money Trader, which focuses exclusively on this strategy, began last November.

I explained to Lee why I like GENZ, but wanted a good put-selling trade for investors who want to own the stock at a lower price. Here’s what he suggested…

• Sell the October 2009 $47.50 puts, currently trading at $1.85 on the bid. This means for every put that you sell, you will collect $185.

• Keep in mind that one put contract represents 100 shares.

• If GENZ never sees the $47.50 strike, you keep the $185.

• If the stock drops to or below $47.50 at expiration, you’ll be required to buy the stock for $47.50 (100 shares of GENZ for every put contract you sell). But remember, that you collected $1.85 already, reducing your cost basis to $45.65.

So if you like GENZ, but would prefer to own it at a lower price, this is one trade to consider.

Add Watson To Your Watchlist

In my column last week, I also suggested best-in-class generic drug maker Teva Pharmaceuticals (Nasdaq:TEVA).

Another generic drug maker to look at is Watson Pharmaceuticals (NYSE: WPI). Watson just announced its acquisition of privately held Arrow Group, a generic biotech drug maker, with significant international operations.

I like this move by Watson, as it broadens the company’s reach both in products and markets served.

The bottom line is that while healthcare reform could very well change the investing landscape within the sector, you can always find opportunities if you know where to look.

Source: Four More Ways To Profit From U.S. Healthcare Reform

Sales at U.S. retailers dropped 0.4%, the eighth monthly decline in the last 10 months, following a revised 1.3% drop in March that was larger than previously estimated.  Excluding auto dealers, sales fell 0.5%

Economists had expected an increase of 0.5% to 1.0%.  Since July, retail sales have shown increases only in January and February, and those were attributed to post-holiday sales.

The disappointing numbers indicate surging unemployment and the worst housing market in decades could temper consumers’ appetite for spending for years, analysts said. As long as consumer spending is muted, which accounts for about 70% of all economic activity, any recovery from the worst recession in over 50 years is likely to be slow and difficult.

“These numbers are certainly discouraging, a bit disheartening,” David Resler, chief economist at Nomura Securities (ADR NYSE: NMR) in New York, told Reuters.

The news sent U.S. stock index futures reeling to steep losses in New York trading, while government bond prices enjoyed their biggest gains in weeks.
There can be little doubt that soaring unemployment is curtailing consumer spending. Unemployed workers naturally cut back on purchases and recent statistics suggest those that are still working are increasing their savings rate.

Despite the fact that payrolls fell by only 539,000 workers in April, the smallest drop since October, the jobless rate climbed to 8.9%, the highest level since 1983. Economists surveyed this month by Bloomberg predicted the jobless rate would average 9.6% in 2010.

The same survey also showed consumer spending will be unchanged this quarter after rising 2.2% during the first three months of the year. Last month, economists had forecast spending would fall at a 0.5% annual pace in the second quarter.

“The second quarter is going to be tough,” Bill Cheney, chief economist at John Hancock Financial Services Inc. in Boston, said in a Bloomberg Television interview. “Consumers are losing their jobs, concerned about losing their jobs and losing wealth.”

Retail sales fell even as consumer confidence started to rebound. According to last month’s report by the Conference Board, a New York-based private research group, consumer sentiment jumped in April by the most since 2005.

Falling demand at electronics, furniture, clothing and grocery stores led the decline in sales.

Gas stations also reported falling receipts in April, even though fuel prices climbed, indicating Americans may be cutting back on driving just as the U.S. enters the usually busy summer months.

Imported petroleum prices were up 15.4% in April – the largest monthly rise since a 17% increase in March 2002 – after February and March figures were revised upwards to 5.3% and 7.9% respectively.

Sales at car dealers were among the few retailers to show an increase last month. Auto sales gained 0.2% after falling 2% in March.

Counter to an industry report last week, the government’s data said sales at clothing retailers decreased 0.5%.

According to last week’s report from the International Council of Shopping Centers, the New York-based trade group that measures sales at about 40 retail chains, April same-store sales rose 0.7%, the first gain since September.

Wal-Mart Stores Inc. (NYSE: WMT), the world’s largest retailer, said sales at U.S. stores open at least a year rose 5%. Other retailers that said first-quarter earnings exceeded their forecasts included Kohl’s Corp. (NYSE: KSS) and BJ’s Wholesale Club Inc. (NYSE: BJ).

Those reports had raised hopes that shoppers are returning to stores. But yesterday’s report had retailers preaching patience.

“We’re still working our way through the slowdown,” Mike Niemira, chief economist at the ICSC, told Bloomberg. “I think it will get better as the year progresses. The month of May will still be tough and I suspect by the summer that things will be a little broader in terms of the improvement.”

Source:  Plummeting Retail Sales in April Bury Economic “Green Shoots”

Three reasons why they will explode out of this worldwide slow down; they have no debt and a three trillion dollar surplus, six-percent growth is considered a recession, and most importantly, a government that puts China first.

One more thing, the Fed just bought up a huge amount of our debt to guarantee the three trillion dollars the Chinese hold will be worth enough to keep them from selling it.

Of course, our Fed said the purpose was to assist homebuyers by lowering interest rates. But what really happened was that we just paid a huge ransom to the Chinese to keep the price of our bonds propped up.

With this move, the Chinese just graduated from emerging economy status to key player in the world. When we have to prop up our bond prices to keep the Chinese from selling them, they have arrived.

Don’t let this news get you upset, get even. Let’s make some money on them!

First idea, China Life Insurance Company, symbol LFC.

It is essentially a monopoly that is fully backed by the totalitarian regime in China, and it is protected from competition by the government. It has a 50% market share and has only developed about 10% of its potential.

Earnings this year are around $1.39 and are expected to grow to about $2.14 in 2010. The stock price is around $50 now and has been as high as $69 in the last 12 months.

You have to love monopolies!

Next idea, China Mobile Limited, symbol CHL.

This company has more mobile phone subscribers than we have people in the U.S., 470 million. It grew its subscriber base by 6,000,000 just last month. It has no debt, is swimming in cash and is expected to add 7,000,000 new subscribers per year going forward.

The stock is around $43 now, down from $90 in the last 12 months, with a 3.7% dividend.

Mobile demand in China is insane. Mobile technology has allowed them to develop an entire communication system nationwide with virtually no infrastructure costs. The future is unlimited for this company.

Don’t feel like a stock play, try an ETF, FXI. It has a few non-performers in its portfolio, but it is currently selling for about $28 and has a 12-month high of almost $55. That’s a lot of upside potential for an ETF with a 3.1% dividend.

The key to a successful China strategy is the inevitability of the play. Patience will be rewarded, but don’t get antsy if it doesn’t fly off the charts in the next six months. Give this a three to five year time horizon and you won’t be disappointed.

Don’t tread water in the U.S. market for five years to see any appreciable growth. Hit the road and get in on this far eastern money monster.

Source: Buy China Now: Making Money There Will Be Too Easy

Here he explains how the recently signed U.S.  government bailout “will make corporate bonds the place to be for a very long time.”

As the stimulus and banking packages unfold, there is one thing that we know for certain, there will be one hell of a lot of money printed and pumped into the system. The success, or degree of success of these programs is still up in the air, but we know for certain that we will have a lot of new money out there.

These bailouts will result in a series of events that will make corporate bonds the place to be for a very long time. In fact, bonds may be the only place you will make money in the next few years.

The first event is already in progress, printing lots of new money to finance the bailouts. Let’s ignore the cost of financing these bailouts and just look at the effect it will have on inflation.

Unavoidably, inflation will be primed to take off.  It’s like pouring gasoline on a fire. You pour enough money on the economy and the flames will get bigger. This is the second event.

As we all know, too much inflation is death for our economy and the stock market. It’s like not being able to get your in-laws to go home. Life is awful. You have to have lived through the late ’70s and early ’80s to appreciate this fact.

Are double-digit interest rates like the early eighties possible? Considering the amount of new money being pumped into the economy, it is more likely than most can imagine right now.

The third event, the Fed will have to raise interest rates to control inflation or hopefully stop it before it can do its damage to the economy and the stock market.

Look back to 1994 and see what multiple interest rate increases did to the stock market in a normal economic environment. The average stock was down at least 30%. I can’t imagine what will happen in the already challenged economic environment we have now.

The fourth event will be for bond prices to drop as the Fed increases rates. How the Fed’s actions affect bond prices is not a complex relationship, but it would require too much space for me to explain here, so you’ll have to take my word for it.

These interest rate increases will create one of the best buying opportunities in bond history. Using a simple strategy, you will be in a position to buy up discounted bonds at higher current yields than they were paying last year.

Discounted bonds not only pay you a higher current yield than the coupon of a bond, it also pays you capital gains at maturity. In the past six months, I have taken capital gains on these same types of bonds as high as 97% in less than two months.

If you are a person that buys long maturity bonds to get the highest interest rate you can, you may want to pay particular attention to the rest of this article. Long maturity bonds will be crushed in what appears to be all but a guaranteed high interest rate, high inflation environment.

Here is a simple and safe method for beating the market for the next five years. Invest in ultra short term, investment grade corporate bonds on an averaged and staggered basis. Here are the particulars.

Investment grade only. Junk bonds have earned their name. Does this mean you can never have a BB bond, investment grade are BBB to AAA, no. There are some exceptions, but staying in investment grade bonds gives you an 80-year documented success ratio of 99%. That means 99% of the time investment grade bonds pay off. Junk bond payouts are significantly lower.

No matter what is happening in the economy, quality is always your safest bet in investments.

Short term, staggered maturities of three years or less. This is the key to the success of this approach. It will sound very foreign to most bond investors, but give it a chance.

Long maturity bond prices are crushed by interest rate increases. Short maturity bonds, in this strategy that means six months to three years, will drop in price but much less. Since they mature sooner they also allow you to buy back into a rising interest rate market and take advantage of the price drops.

In long bonds, you’re stuck. The ultra short maturities give you as much protection as possible from getting stuck in bonds that you will have to take a loss on to get out of in the coming inflation.

There are two more techniques you need to use to add a little more security to this method: staggering and averaging in.

Staggering your maturities will give you an extra edge. It’s accomplished by buying into the market in small amounts, five or ten bonds at a time and plan on having 10 to 25 different bond positions added to your portfolio over a 12 to 18 month period.

This does two things. It averages you into a market over time, which will typically give you a better average cost, and it staggers your maturities so you will have several bonds coming due every year. This gives you fresh money to reinvest as bond yields go up and prices come down with the rate increases. Staggering and averaging in will also give you better diversification, which is always a good thing.

No matter what you choose to do, never load up on a few bonds because the coupons look to be good at the time. This is the oldest trap in the money business for conservative investors. It will end up costing you.

Don’t let your lack of familiarity with bonds keep you from using this technique. Take a look at the Bond Trader, it does everything I have described here and uses a few additional techniques to give its investors the long-term returns of the stock market without stock market risk. To date it has not had a single loss.

Source: How the Stimulus Will Drive Bond Profits To New Highs