This from Sovereign Society:

With yields as high on municipal debt as they’ve been in years and the President-elect’s office all abuzz with news of stimulus for state and municipal governments, the cunning investor is paying attention. The bailout of the financial system is already leading to some serious opportunities in commercial debt, so should you get ahead of the curve and dive into municipal debt?

In a word; no. At least not yet.

After all, big government curing our economic woes with “stimulus” projects is almost like a drug dealer curing withdrawal symptoms with more heroin…you just can’t help but wonder whether his medicine is exactly what got you there in the first place. Regardless, we’ll indulge popular thinking and acknowledge the fact that the government is now prepared to throw piles of free money at this sector of the economy.

But hold on just a second…what’s that percolating in D.C.? US$1trillion won’t do the trick, they say. Everyone from Bernanke to Riksbank-prize-winning economist Paul Krugman say that we’ll need more… possibly US$2trillion, or even more than that. And Obama has certainly indicated that he’d be open to that kind of discussion.

Now, let’s glaze over the fact that I could personally put another man on the moon – and probably Jupiter – with that kind of loot. And while we’re at it, we’ll glaze over the potential US$3trillion in government spending in 2009 (more than any government has spent in a single year since humans started governing).

No, let’s be professional about this, and in the words of Ricky Roma from Glengarry Glen Ross, “You never open your mouth until you know what the shot is.” So let’s figure out the shot…

Bloated State & Local Governments…

In the period between 1960 and 2000, the Federal Government went from two million total employees to three million. This difference didn’t even track the total growth in population over that period. But in that same period, state and municipal governments went from six million total employees all the way up to 20 million.

And since then, the situation hasn’t really improved. When the “War on Terror” terrified us into giving up a greater portion of our personal liberties for the promise of “security,” these payrolls ballooned again.

Think about it in practical terms; when was the last time you went to the DMV or the county courthouse? There were at least a handful of TSA-style security guards to frisk and scan you…since everyone’s a terrorist until proven innocent these days…who do you suppose pays their bills?

Why you do! And you also pay for another 20 million more state & local employees who rely on over US$74 billion in your annual taxes to keep a roof over their heads. But you have to remember; these outfits aren’t run with the trademark efficiency of business titans like IBM or Microsoft.

Instead – as you can see from the chart at the left – they constantly waffle back and forth from periods of excess savings to periods of excess debt (note that the Census data for this chart ended in 2007…when our crisis was just beginning and state & local governments held a collective savings rate of -10%!)

Sovereign Society Investment Director Eric Roseman chimes in, “The growing funding concerns facing municipalities has already spread to several states, including California, which requires cash to finance a massive budget gap in 2009. California, with a long string of budget deficits has declared a State of Emergency in December as the state runs out of cash. California is the largest issuer of muni debt.”

“What’s truly alarming about December’s scrapped Port Authority offering was the short duration of the fixed-income term of only three years. Investors would typically embrace a short-term note that pays a tax-free yield. But these are not normal times.”

“The rating agencies have also confused investors since the market has lost confidence in their ability to accurately rate and rank credit offerings.”

“As the U.S. economic recession deepens into 2009 it would be advisable to avoid tax-exempt municipal bonds, despite their attractive yields. The risk is too high. You’ve got to believe that many more cities, towns and states will suffer from a credit squeeze coupled by a lack of buyers as revenues continue to decline in a deteriorating economy. Avoid muni bonds.”

Source: When a Trillion Dollars Just Won’t Do…

This

I’ll be the first to concede the going’s tough. That almost every “time-tested” strategy that worked well in bull markets is sputtering and collapsing.

But is it so bad we’ve given up on turning a profit? And just resigned ourselves to preserving our principal, right?

WRONG.

This week the Treasury sold $32 billion in 4-week bills at a yield of ZERO percent.

That’s not a typo. Investors actually clamored for the opportunity to lend the government their money in return for absolutely no return. In fact, investors bid $126 billion at the auction, more than four times the amount available.

As Michael Franzese, the head of government bond trading at Standard Chartered explains, “I have never seen this before… It’s all about capital preservation for the turn of the year, not capital appreciation.”

Forget unbelievable. It’s idiotic. What investors are essentially saying is that absolutely no better opportunity exists in the market right now – that survival is their paramount goal of investing, not profiting. But ignore what the lemmings are doing. Their folly is creating endless (and historic) opportunities for us to increase our wealth. Of course, simply telling you that will not suffice…

6 Market Investment Opportunities Right Now

Let me share with you a short-list of market investment opportunities I’m researching and taking advantage of on a daily basis. If nothing else, it should make you think twice before you follow the $32 billion worth of stupid money…

• International Stocks: Forget decoupling. It was a farce. The United States caught a cold… and international markets caught pneumonia. The offshoot? International markets are the cheapest on the planet – despite much stronger growth prospects than in the United States. For instance, the average Russian stock trades for just three times earnings! South Africa and Brazil are the next cheapest at six and seven times, respectively. An easy way to capture upside here is to rebalance your portfolio by adding money to your diversified international funds or investments. One of my favorite options here is the Templeton Emerging Markets Fund (NYSE:EMF), run by the best international manager around, Mark Mobius.
• “Free” Stocks: Hundreds of stocks trade below their cash balances, making them essentially free. Some will of course, burn through that cash faster than my wife on a shopping spree. So we can’t buy blindly. But that’s not the case for all of these stocks. One compelling opportunity I recently presented to my subscribers is Immersion Corp. (Nasdaq:IMMR) – a leader in haptic technology. Forget cash on hand, its patent portfolio is worth more than the current stock price.
• Income: Dividend yields rest at 15-year highs. Of course, not all dividend-paying stocks are created equal. Many will slash or suspend payments just to survive the downturn. But others won’t. The master limited partnership (MLP) space is rife with opportunity. Investors seem to forget these companies aren’t impacted by the price of oil and gas. They just get paid to transport it. The price of oil might be off 70%, but demand is not. My favorite play here is Kinder Morgan Energy (NYSE:KMP). It just increased its dividend and currently offers investors an attractive 8.7% yield.
• Munis: We all know there are NO guarantees in investing. But I can guarantee taxes are going up. How else will the government fund the billions upon billions in new spending? Especially, at a time when tax receipts will plummet. Thanks to a drop in corporate profits and the loss of 1.2 million taxpayers to unemployment. No surprise, the herd is piling out of munis ($7.4 billion so far this quarter) at exactly the wrong time. Their folly is creating attractive tax-free income yields and upside for us. For instance, the Vanguard Intermediate Tax Exempt Fund (VWITX) currently sports a 4.25% yield. That’s tax free and equivalent to earning 6.5% (based on a 35% tax bracket).
• Real Estate: Pricing remains completely irrational for real estate investment trusts (REITs). Some closed-end funds are off as much as 90%. Dirt is cheap – but it isn’t that cheap. This is a once-in-a-lifetime rebound opportunity. If nothing else, capitalize on the unstoppable trend of homeowners converting into renters by considering an apartment like Equity Residential Properties (NYSE:EQR).
• Short selling: An economic recovery won’t save every company. Plenty will remain in the tank, or worse, end up on the courthouse steps. Yet, most investors overlook the simple strategy to profit from these collapses – selling short. But they shouldn’t. In these markets it’s one of the few strategies consistently booking winners. That’s why I’ve been using it for my subscribers. Just last week, we booked a 50% winner in The New York Times Company (NYSE:NYT), for example.

Remember this is just my short-list. The key takeaway is simple – investment opportunities abound.

Granted, we might have to work harder than normal to unearth them. But we certainly don’t have to resign ourselves to handing over our hard earned capital to the government for nothing in return. After all, that privilege is reserved for our tax dollars.

Source: 32 Billion Reasons The Average Investor Will Fail