And state governments are feeling the pinch. According to the National Conference of State Legislators, there are only three states (Arkansas, Wyoming, and North Dakota) that do not face budget shortfalls for fiscal years 2009 or 2010. In other words, 47 states are currently projected to run short on cash in the near future.

And California – the world’s eighth largest economy – is in the worst shape of all. Currently, the state has committed to spend $26.3 billion beyond what it takes in. Controller John Chiang estimates that the state has enough cash to last through July. To avoid defaulting on debt payments, California will issue more than $3 billion of IOUs this month.

But while the plan may buy some time, it will only make the situation worse. The big banks (Bank of America -NYSE:BAC-, Citi -NYSE:C-, Wells Fargo -NYSE:WFC-, JP MorganChase -NYSE:JPM- and others) have stated that they will not cash the IOUs after July 10th. On a side note, this likely means that the banks are either so short on liquidity that they can’t afford to do so, or they are not confident that the state will honor its commitments when the IOUs mature in October.

That means that the state’s contractors and vendors must either hold these IOUs until they mature, sell them at a discount in the secondary market (listings are already popping up on Ebay and Craigslist) or, for smaller denominations, take the hit at a check cashing store.

Many of these contractors are already strapped for funds to pay their employees and subcontractors and can ill afford the disruption in cash flow. Undoubtedly, this will cause a cascading domino effect of layoffs, defaults and business closures. This will depress tax revenues even more, while increasing the demands for government services.

And it is not just contractors and vendors taking a hit. Local governments are also receiving IOUs for the state’s financial obligations. That could force some local governments to default on their municipal bond payments.

But this is not what constitutes the greatest threat to municipal bondholders nationwide. That threat comes from the federal government.

You see, state governments are not permitted to run budget deficits. Unlike the federal government, state governments are required by law to balance their budgets each year. And they can’t just print money like the federal government does (California’s quasi-legal IOUs notwithstanding).

That means the states must either cut services, raise taxes, or both. Neither alternative is easy to get through the legislature. In the case of California, Schwarzenegger recently declared that tax increases are “politically impossible.” And yet the alternatives include slashing spending on health care and education and releasing inmates from prison.

Political difficulties aside, California and just about every other state will be cutting services. And you can guarantee that just about every tax you pay will be going up in the future. But the states will also be putting increasing pressure on Washington for handouts. If there was money for the banks and the car companies, certainly there must be something for the states, right?

So far, Washington has rebuffed California’s calls for bailout money. The aid they have issued has come in the form of stimulus, such as increases in Medicaid and education funding. But the stimulus is obviously not working, and it’s not just California that is in trouble.

Corina Eckl, Director of National Conference of State Legislators, recently wrote, “The state fiscal situation is rapidly deteriorating and the figures for fiscal year 2009 and fiscal year 2010 have moved from sobering to distressing”. She compares the situation to a bad horror movie, where the “details get more gruesome, and the story never seems to end.”

As the cries for help become more urgent, the possibility grows that Washington will come to the aid of California and other states facing serious shortfalls. But don’t think for a moment that this assistance will come without strings. And one of these “strings” could well be the elimination of the tax exemption on interest payments from municipal bonds. In fact, the Obama administration has already pushed us over that slippery slope.

The interest payments on state and local bonds for public projects have always been exempt from federal taxes. But since the FDR administration, various presidents and legislators have tried to remove this exemption.

Given the “tax the rich” mentality in government, and the fact that nearly 50% of tax-exempt bond income is claimed by households earning over $500,000, it’s no wonder that efforts to roll back the exemption have grown stronger. And the “extenuating circumstances” of the current financial crisis have provided just the cover that was needed.

As part of the “American Recovery and Reinvestment Act of 2009” state and local governments are now authorized to issue taxable “Build America Bonds” to finance projects for which they could otherwise issue tax-exempt government bonds.

State and local governments that issue these bonds would “receive a federal subsidy payment for a portion of their borrowing costs on Build America Bonds equal to 35% of the total coupon interest paid to investors.”

And because there was no hearing on these bonds, there was no opposition. Investment manager, Richard Shaw of QMV Group, calls this the proverbial “camel’s nose under the tent.” Before long, the entire beast is sleeping right beside you. It was enough for Bloomberg to state that, “Barack Obama may be the worst thing that ever happened to tax-exempt bonds…”

Now, you might be saying that issuing new taxable municipal bonds is a far cry from re-writing the rules on existing bonds. And I would say the same thing, if it were not for what happened recently to bondholders of Chrysler and General Motors.

In both cases, once the government got involved the contractual rights of capital were superseded by the “greater good of society” – a blatant violation of contractual law and more than a thousand years of common law. Chrysler bondholders were denied first priority in liquidation. And GM bondholders were shafted in favor of the union.

I am not saying the rules will be re-written for municipals. But I wouldn’t rule it out either. If the federal government intervenes in state finances, you can be sure there will be strings attached. And one of them could involve an assault on tax-exempt income.

Quoting Richard Shaw again: “If the federal government steps in to provide ‘exceptional assistance’ to California or any other state, it would be imprudent to deny the possibility of the rights of bondholders being subordinated to the ‘greater good.’”

Considering the tenuous state of state and local finances, the risk of default on municipal bonds is almost certain to increase. Add to that the outside potential for a change in tax status and caution is advised. If you own municipal bonds, diversification is paramount. And stick to general obligation bonds, which are backed by the full taxing power of the issuing jurisdiction.

And don’t forget, banks and Property & Casualty insurance companies own about 25% of all municipal bonds. So, if the municipal bond market takes a hit, these sectors will suffer the consequences. Invest accordingly.

P.S. My colleague, Steve McDonald, runs an exceptional service called, The Bond Trader. His focus is on high quality, investment grade corporate bonds. According to Moody’s the long-term default rates on these bonds are less than 1%. And because Steve only recommends bonds trading at a discount, he has led his subscribers to capital gains as high as 84%, combined with super-safe income.

Since September, 59 out of 62 of Steve’s recommendations have increased in value… two are breakeven and only one is down. Compare that to the stock market and you might wonder why you’re taking such a big risk in stocks. Learn more about The Bond Trader here.

Source: Will the Feds Use the California Crisis to Change the Rules on Munis?

But what if I told you that you can make two to three times the long term stock market average (15% to 30% annual returns)… without taking stock market risk?

Considering the return of the stock market the last couple of years and the fundamentals going forward, I hope you’ll give this your consideration. So how do you beat the market, without putting your money at risk in Wall Street’s casino? Corporate bonds.

Most investors avoid bonds because they think they are boring and the returns are too low. Or they simply don’t understand how they work. This is a big mistake.

Today, I’ll show you how to use high quality corporate bonds (no junk) to generate 15% to 30% annual returns (and more). And I’ll also show you a simple way to determine exactly how much you’ll make when you invest in a bond.

So forget what you have heard about “boring” bonds. I can show you how to build a high octane portfolio, but without the risk and volatility associated with the stock market.

When you invest in a stock, you own a small percentage of the company. But the company makes no promises whatsoever. You have no idea what the price of the stock will be next month or next year. And if the company pays a dividend, there is no guarantee that it will go up in the future or that it will even continue. In terms of financial obligations, shareholders come in just about dead last.

Bondholders are in a more privileged position. When you buy a bond, you have agreed to loan the company your money. For its part, the company is legally bound to return the face value of the bond, plus interest. In other words, you will know (before you invest) exactly what you’re going to be paid.

The only thing that can disrupt your investment is if the company breaks the contract and defaults on the loan. Even in this case, bondholders usually collect something. Often, they receive 100% of what is due, even in bankruptcy. Stockholders, on the other hand, are normally wiped out in bankruptcy.

Now consider that the long term default rate for the most speculative bonds (so called “junk bonds”) is just 4.5%. That means that 95.5% of speculative bond issuers pay exactly what they owe and right on schedule. According to Moody’s, the default rate for investment grade bonds is even slimmer. On a long-term basis more than 99% of these issuers fulfill their obligations to investors.

Think about this for a moment… How would YOUR portfolio look if 99% of your investments made you money? Where would you be today if you made 10% per year on every investment you ever purchased? I expect retirement would be a lot closer… or a lot more comfortable if that were the case.

Now let me show you how to calculate your return on a corporate bond and how to beat the market, hands down, with a far greater level of safety…

If you were to ask an academic how to calculate your return on a bond, they might give you the following formula to calculate yield to maturity:

If you understand that, you can stop reading now. Otherwise, here is a much simpler way to determine your return.

Subtract what you paid for the bond from its face value. The difference is the capital gain you will receive at maturity.
Add the capital gain to the total expected interest payments.

Divide the sum (interest payments + capital gain) by the amount you paid for the bond. This is your “Total Return”
Divide the total return by the number of months to maturity, then multiply by 12. This is your “Annual Return”

Now let me give you an example, using a bond that my colleague Steve McDonald recommended to his subscribers in April.

The bond is issued by Sallie Mae. It matures in October of 2011 and has a coupon of 5.4%. Since corporate bonds are issued with a face value of $1,000, the 5.4% coupon equates to $54 per year in interest.

But Steve’s subscribers didn’t pay face value for the bond. They bought it at a discount and paid just $660. So let’s calculate what this bond will return.

$1,000 – $660 = $340 (capital gain)
5 interest payments x $27 = $135 + $340 = $475 (capital gain + interest)
475 / 660 = 71.96% Total Return
71.96 / 28 x 12 = 30.84% Annual Return

So in this example, we have a safe, investment grade bond that will return 31% annually. That’s more than three times the average long-term return of the stock market. And this is an investment with a contractually bound return. The only way Steve’s subscribers would not receive this return is if this government-sponsored enterprise (GSE) defaults on their obligation in the next two years. According to Moody’s and S&P, which have both rated this bond “investment grade”, this is highly unlikely.

The key to making high returns consistently in corporate bonds is to buy the safest bonds you can find at the biggest discount. That way you can add a significant capital gain to your regular interest payments. Steve issues recommendations like this every week to subscribers of his service, The Bond Trader.

Since September, 59 out of 62 of his recommendations have increased in value, two are essentially even, and only one recommendation has lost value slightly. I’m guessing you would sleep a lot better if nearly 100% of your investments had increased in value over the past year… along with paying you regular income.

If that sounds interesting, consider adding corporate bonds to your investment portfolio. In fact, it’s likely you are under-allocated to bonds anyway.

The simplest rule of thumb is to use your age to determine your allocation between bonds and stocks. If you are 60 years old, you should have 60% in bonds and 40% in stocks. If you are 30, you should have only 30% in bonds, with 70% of your portfolio allocated to stocks.

“Letting it ride” might be an entertaining experiment when you’re up $300 at the craps table in Vegas, but the concept has no place in your retirement plan.  The older you get, the more assets you should move to the safety of bonds.

Not only will you sleep better at night, but if you follow the right strategy, you’re likely to trounce the returns that most investors make in stocks.

To your success,

Jon Herring

Source: Make Stock Market Returns -Without Stock Market Risk!-

In a speech before the student body, Lil’ Timmy told those gathered that Chinese dollar holdings and investments in U.S. debt were safe and that the U.S. Treasury and Federal Reserve are committed to a strong dollar policy.

Ha! That’s a good one. And the Chinese students let him know it, with a collective belly laugh. I suspect some of them were actually rolling on the floor. And they weren’t laughing with him. They knew he was full of it. I expect you do too.

Despite ongoing assurances to the contrary, the U.S. government doesn’t want a strong dollar policy. In fact, they WANT to inflate the dollar to nothingness. They just don’t want it to happen overnight.

The official U.S. debt is around $13 trillion. But that is only part of the story. Do you remember Enron and WorldCom and the fraud of “off-balance sheet accounting”? This is a dishonest accounting trick whereby companies set up satellite corporations to hide their true liabilities from auditors and investors.

The king of off-balance sheet accounting would have to be the U.S. government. You see, the “official debt” doesn’t include the very real obligations our country owes for Social Security and Medicare. Add these and a few other entitlement programs to the equation and the United States’ TOTAL debt is in the neighborhood of $100 trillion.

This is an astronomical sum of money that can NEVER be paid in real terms – even if most government services were virtually eliminated and taxes were doubled across the board. The only solution is to inflate the debt away by devaluing the dollar. The scoundrels in Washington are rarely honest about anything. You didn’t expect them to actually run a tight ship and pay our debts legitimately, did you?

The only problem is that the present financial crisis, bailouts and money printing operations have rapidly accelerated the process. The bond market knows it. And China knows it.

So how do the Chinese plan to protect themselves? And more importantly, how can you protect your wealth and profit?

First of all, it is important to understand that what countries say they are doing with their currency and foreign reserve holdings and what they are actually doing are rarely the same. Poker players don’t show their hands and use intentional misdirection. In this poker game however, the stakes are in the billions and trillions. So you have to learn to read through the headlines.

China says that they are still committed to their investments in U.S. Treasuries… that they will continue holding dollars… and that gold is not really an option. What else would you expect them to say?

In reality, China has been adding to their gold reserves as fast as they can without driving the price up too quickly. And they have been doing so undercover, through intermediaries. They are also soaking up nearly every ounce of gold that is produced within China. While China is now the number one gold producing country in the world, their production does not hit the world markets.

Diversifying out of their dollar holdings is a tricky process as well. China obviously can’t just dump their dollar holdings overnight. What they are doing instead, is slowly converting their debt instruments and paper wealth into real things… copper, steel, lumber, concrete, cotton, wheat, soybeans and precious metals.

And instead of buying long dated U.S. Treasuries that mature in 20 or 30 years, they are buying instruments with shorter term maturities.

And finally, of course, the Chinese (and other countries as well) are plowing any excess exchange reserves back into their own country to provide economic stimulus. In November, the Chinese government announced a nearly $600 billion internal stimulus package.

This is bad news for the U.S. government bond market. Just as America’s spending goes parabolic and we need to sell more debt than ever, the biggest buyer is walking away from the trading floor.

The Federal Reserve might control short term interest rates, but it is the market that controls long-term rates. And just like any market, this one responds to supply and demand. With a budget deficit of nearly $1.8 trillion this year and soaring deficits as far as the eye can see into the future, there is going to be a glut of supply. And we have already addressed what is happening to the demand.

The Fed’s solution is to step in and buy our own debt, when other countries and institutions are unwilling or unable to do so. But this creates a catch-22. This amounts to nothing more than printing dollars. And the more dollars we print to buy our own debt, the weaker the dollar becomes and the less likely that foreign countries are willing to buy.

In my view, there is only one way this scenario will play out. Get ready for soaring interest rates, hyperinflation and exploding gold and silver prices. It is not going to happen overnight, but I don’t see any way it can be avoided.

It used to be difficult for small investors to use the market to profit from rising interest rates. Today, it is as simple as buying or shorting an ETF. The chart below shows the yield on the U.S. 30-year Treasury bond. In the early 1980s the yield peaked around 16%. It has been falling ever since. As yields fall, bond prices rise, so what you are looking at below is a 28 year bull market in U.S. Treasury bonds.

But pay attention to the last six months…

That spike represents what I believe will mark the end of the bull market in the “long bond”. And it represents the beginning of a new era of rising interest rates.

Certainly, you should own gold and silver and precious metals equities. But you should also consider pairing that investment with a bet against long-term U.S. government bonds. The way to play it is to short the iShares Barclays 20+ Year Treasury Bond Fund (TLT) or buy the ProShares UltraShort 20+ Year Treasury Bond Fund (TBT).

The TBT is an exchange traded fund that returns two times the inverse of the daily performance of the long bond index. Do not buy your entire position all at once. Leg into this position incrementally over the next six months or a year.

To Your Success,

Jon Herring

Just for kicks, I put the year 1980 in the calculator to see what would come out. If you had $25 then, you would need $64.54 today to purchase the same goods and services. If you had $5,000 then, you would need $12,907 to have the same buying power today.

So, what if you had $850 in 1980?  How much would you need today to match the same buying power? The government tells us that number is $2,194. Perhaps you see where I am going with this.

The previous all-time high in gold was $850 an ounce, reached in 1980. So, by the government’s own calculation (which many have shown to be biased to the downside), you would need about 160% more dollars today to match the same buying power you had in 1980.

So how is it that gold – “the world’s greatest inflation hedge” – is roughly the same price today that it was in 1980, after 30 years of inflation? Keep in mind that gold only hit $850 for one day in 1980. The average price of gold that month was only $650. But the point is still valid.

The biggest reason is… manipulation.

It used to be that you didn’t speak about market manipulation in polite company. Everyone knows those conspiracies don’t exist. Who could do such a thing? We now know those sentiments are woefully naïve. There is now a deep and wide body of evidence that points to willful and ongoing, official and unofficial suppression of gold prices. Much of this evidence has been compiled and documented by the good folks at the Gold Anti-Trust Action Committee (www.gata.org).

Why would politicians, central bankers, commercial banks and Wall Street institutions have any interest in suppressing the price of gold? That’s easy. Gold is like a burglar alarm. It serves notice that politicians are spending more than they take in. And it emits a screeching siren when central bankers inflate the money supply. Wall Street and commercial banks hate gold because it represents competition for your investment dollars and savings… and because they can’t make any money on it.

A rapidly rising gold price signals to the masses that all is NOT right with our money and in the financial system. When the price of gold is going up, savers and investors begin to wonder why in the world they are holding dollars in the bank. There are some VERY powerful interests that would like to keep the price of gold in check.

So, how do they do it?

There are a number of ways the banking and political establishment have tried to keep a lid on gold. The first is simply the war of propaganda. Make gold savers out to be the lunatic fringe and denigrate gold itself. This is where the term “gold bug” came from. It was meant to be a disparaging term for people who believe in sound money and honest government. This is also where the talk of gold as a “barbarous relic” originated.

But that argument falls on its face immediately. If gold is such an ancient “relic” and so unnecessary and un-useful in today’s world of modern finance, then why do central banks still insist on holding gold in their vaults? And why do these same banks use gold among themselves to settle final accounts?

They do this because they don’t trust each other. They know that paper money is too easy to fabricate from nothing, while gold is rare and must be labored into existence. Despite what they say, central bankers know that gold is vitally important to the modern financial system and that there is no substitute for it.

Other than the war of words, the banking and political establishment put pressure on gold in other ways as well. One of these is central bank “leasing” of gold. I put leasing in quotes because usually when you lease something out, you expect to get it back (more on that in a moment). For years, central banks have been “leasing” the gold in their vaults to “bullion banks,” operated by institutions such as Goldman, Citi, Morgan, HSBC, etc.

And what a lucrative racket it has been. For years, the bullion banks received massive amounts of gold from official vaults at the “good buddy” interest rate of about 1% a year. They then sold this gold into the market and invested the proceeds. How much money could you have made in the ‘80s and ‘90s if you were able to borrow billions of dollars at 1% and reinvest those dollars at 5% risk-free… or even higher if you were willing to take on some risk? Let’s just say it was a pretty good deal, if you could get it.

Not only has this provided a welcome source of cheap capital for the insider banks, but a near constant supply of gold to the market meant that there were always big sellers to keep pressure on the price.

By no means is this the only way gold has been manipulated, but it is certainly one way. But for this to work in the bullion banks favor, the price of gold must fall or remain flat. Borrowing billions of dollars worth of gold at $300 an ounce and paying it back at $600 an ounce is a recipe for bankruptcy. So you can imagine the enormous incentive within the system to keep the price of gold from rising.

But they have not succeeded. These gold leasing operations were running full tilt in the early part of this decade when gold was in the $200s and $300s. Gold is now three times higher than it was then. And these banks are on the hook for billions of dollars worth of gold.

But remember, these are insiders. By now you know what that means. They have no intention to pay back the tons of gold they have borrowed. And the central banks have no intentions of calling these loans. To do so would require the bullion banks to buy gold at the market, paying prices several times higher than the price at which the gold was borrowed. This would instantly bankrupt these banks, though we know they would be insolvent anyway without taxpayer bailouts. Therefore, the central banks simply roll the “leases” over, again and again.

So, back to the subject of manipulation. Why would you invest in a market that is so clearly manipulated? First, because it is the right thing to do to favor honest money over fraudulent money. But the other reason is that the establishment’s power to manipulate public opinion of gold and influence the market itself is becoming weaker and weaker, and will soon fail altogether.

I was investing in gold and silver and precious metals equities when gold was $260 an ounce. The cries about manipulation of the market were as loud then as they are today. The manipulation was real. And yet, gold has risen 240% in that time. Gold stocks have soared even higher. Despite the best efforts of the establishment, gold has climbed steadily for eight straight years. And considering what is happening in the monetary realm, this trend shows no signs of abating.

However the manipulation due to central bank leasing operations will most certainly abate. These banks do not have an unlimited amount of gold to sell into the market. And their appetite for doing so is clearly waning. Central banks around the world are now adding gold to their coffers rather than divesting.

And despite propaganda efforts to the contrary, the public is gradually waking up to the fraudulent nature of the fiat-based monetary system and the shaky notion of holding unsound dollars in unsound banks.

In the realm of world finance, gold is a tiny market. It won’t take a huge shift in sentiment to stir up a massive increase in demand… demand that could not be met by the world’s miners and would have to result in a sharp increase in prices. Sentiment has already turned. But not nearly to the degree it will when the specter of inflation returns.

That day is coming. Got gold?

Source:  Gold Is Manipulated…And You Should Buy it Anyway

But what is bad for the economy and terrible for the market does not have to wreak havoc on your portfolio. By employing the right strategies, you can multiply your wealth safely in just about ANY market. In fact, there are a number of investment strategies that have never been as safe and profitable as they are today.

Here are several strategies you should strongly consider right now:

• Selling Covered Calls

Selling (also called “writing”) covered calls is one of the safest ways to generate extra income from your portfolio, especially in today’s market. Due to the fear and volatility in the market, option premiums are much higher than their historical averages. As a “seller” of options, that works in your favor. This is a strategy that could easily and safely generate 20% annual income.

Selling covered calls is probably the lowest-risk form of options trading. In fact it is less risky than simply buying stocks. The strategy involves buying a stock and then selling someone else the right to buy it from you in the future. For this privilege, the option buyer pays you cash up front, thus lowering your cost basis for the shares you purchase.

Here’s a hypothetical example of how it works…

Let’s assume stock ABC is trading for $10 and the July call options on this stock, with a strike price of $11 are selling for $1.00. To initiate a covered call, let’s assume you purchase 100 shares of ABC. Then you sell one call option on ABC, representing 100 shares. You would immediately receive $100 in your account, therefore your cost basis on this transaction is $900 ($1,000 – $100).

There are three possible outcomes to this trade:

• If ABC is trading for any amount over $11 at the option expiration date, the buyer would exercise his right to purchase the stock from you for $11. In this case, you would make 22%, based on your cost basis of $9.

• If ABC is trading for less than $11 but greater than $9 at expiration, you would still own the shares at a gain, and you would pocket the cash you received up front. You could then start the process all over, to generate another round of income.

• If ABC is trading for less than $9 at options expiration, you would be holding the shares at a loss. But the income you received up front would offset the loss. And you could repeat the process again to recoup some of the loss and generate additional income.

The key to this strategy is to write covered calls on stocks that you would like to hold for the long term. These could be stocks you already own or new positions. The stocks you select should be those that you believe to be very safe and cheap. And you should employ this strategy at a time when option premiums are large – as they are now. Ideally, you will be selling options that expire within three to five months.

When the strategy works out in your favor (and it will if you employ the rules above), you can generate better than 20% annualized income on a conservative portfolio of stocks. On the occasions when the stocks fall below your cost basis, you would own a stock that you wanted to own anyway… but at a much lower cost than if you had just purchased the shares.

By writing covered calls on high quality dividend-paying stocks you can get an extra bonus. Best case scenario, you will keep the option premiums, you’ll keep the dividends, and you’ll keep the stock too!

• Selling Puts

Selling puts is another strategy that can generate an annualized yield in the neighborhood of 30% – 50%. When executed properly, a put selling strategy can be highly profitable and carry very low risk. This is especially the case in a market like we have today, where fear is high and option prices are elevated.

You can also sell puts with the goal of generating income. In this case, you want the put to expire worthless so you can capture the option premium. To accomplish this goal, you sell puts that are out of the money on stocks you believe to have very little downside risk… and which you would be willing to purchase at a much lower price, if necessary.

Here is an example…

Let’s assume that stock XYZ is selling for $13. We’ll also assume the stock has already fallen a significant amount (not too hard to find in today’s market) and you believe the rock bottom liquidation value of the company is $8.

With the stock trading at $13, the July $10 put option is well out of the money and selling for $1.50. You decide to sell these puts. When the trade closes, $150 will automatically show up in your account for every contract you sold.

The only way you could lose money on this trade is if XYZ trades below $8.50 ($10 – $1.50) on or before the option expiration date in July. That is a 35% drop from the depressed level the shares of XYZ are trading today.

And in the unlikely event that you were obligated to purchase those shares, you should still come out okay. After all, the liquidation value of the company is $8 a share and your cost for those shares is just $8.50. So the downside risk should be very small.

Remember, this strategy should be employed on stocks where you believe the downside risk to be minimal. And you should only employ this strategy on stocks that you would be GLAD to own at a price below where you sell the put.

You should also have a reasonable understanding of the true valuation of the company. For this reason, I would exclude most financial and insurance companies from this category, as very few people (including the insiders) have any idea how much these companies are worth or what is on the books.

In today’s market, you can expect a well executed put selling strategy to generate an annualized yield of 30% to 50% with limited risk. Selling puts in this environment and following the rules above can put big odds in your favor.

By selling put options, you could buy super-high quality stocks as much as 50% cheaper than today’s historically low prices. PLUS you’ll get cold, hard cash deposited in your account instantly… adding to your annual income!

Where You Can Learn These Strategies… and a Lot More!

By no means are these the only strategies that can be highly profitable in today’s market. We are also seeing a once-in-a-generation opportunity in high quality corporate bonds. Invest in the right bonds and you can see significant capital gains plus income… without taking stock market risk.

This is also an excellent market for shorting stocks. But you should not go out and just short any stock. The inevitable bear market rallies could put you in the poorhouse. The lowest risk opportunity is to short those stocks that are almost certainly going to zero – companies with an impaired business model and a massive debt load. There are dozens, if not hundreds of these companies out there.

Now for some even better news: you don’t have to do all of this on your own…

In June, at the Turnberry Isle Resort & Club in Miami, Investor’s Daily Edge and Mt. Vernon Research have asked nine top investment experts to share their number one strategy and top recommendations that are making a fortune in today’s market. Of course, all of the above topics will be covered.

To learn more about this conference and the once-in-a-lifetime opportunities we’ll be discussing, click here.

Source: Two Strategies Perfect for Today’s Market

This from Investors Daily Edge:

From the government that brought you $1,000 toilet seats and $500 hammers comes the “Great Economic Stimulus Boondoggle of 2009″. Okay, while it might be an appropriate title, that’s not what it is called. President-Elect Obama’s stimulus plan is actually called the “American Recovery and Reinvestment Plan.”

In my article last week, I brought up the distinct parallels to Ayn Rand’s book Atlas Shrugged and what is happening in the financial and political world today. In a Wall Street Journal article highlighting these startling similarities, Stephen Moore tells how Rand pilloried various acts of government futility and their “benevolent-sounding titles”.

There is the:

• “Anti-Greed Act” which is meant to redistribute income
• “Equalization of Opportunity Act” to prevent people from starting more than one business (to give others a fair chance) and the
• “Anti Dog-Eat-Dog Act” to restrict competition between firms and slow the wave of business bankruptcies.

While these acts sound far-fetched, they are not too far removed from what we have seen from Washington in recent months, such as the $700 billion “Emergency Economic Stabilization Act” and the “Auto Industry Financing and Restructuring Act” which followed.

And now we look forward to what will certainly be one of the biggest government-spending programs in history – Obama’s “American Recovery and Reinvestment Plan”.

Will it work? Will it help America to “recover”? Of course not. Let us count the flaws and discuss why this plan not only will not help America to “recover”, but will make the sick patient even sicker.

In a speech before the student body at George Mason University on January 8, 2009, President-Elect Obama stated:

“It is true that we cannot depend on government alone to create jobs or long-term growth, but at this particular moment, only government can provide the short-term boost necessary to lift us from a recession this deep and severe.”

I won’t even go into the assumption that what Obama is looking to do is provide a “short-term boost.” Do you really think this will be a quick in and out procedure? Not hardly.

But the bigger flaw is Obama’s Keynesian assumption that government can fix this economic downturn by increasing spending. In some cases, government spending can boost the economy. But most economists agree that too large an infusion of government spending ultimately slows growth, raises interest rates, and makes tax increases a certainty.

Federal government spending already accounts for one out of every four dollars in U.S. economic activity. This is the highest rate since World War II and it’s only going higher.

Let’s return to Obama’s recent speech:

“Only government can break the cycle that is crippling our economy – where a lack of spending leads to lost jobs, which leads to even less spending; where an inability to lend and borrow stops growth and leads to even less credit.”

Now we’re getting somewhere. According to Obama, what is crippling our economy is a “lack of spending” and “an inability to lend and borrow”. So our economic problems have nothing to do with loose monetary policy, the systematic dismantling of prudent regulations by crony capitalist bankers and legislators, and the parasitic expenses of an out-of-control government.

None of those things had anything to do with our current situation. Instead, we got here by not spending enough, not consuming enough and not borrowing enough. Debt is a large part of what got us into this mess. More debt will not get us out.

The President-Elect continues:

“[...] we need to put money in the pockets of the American people, create new jobs, and invest in our future.”

Obama has stated that he plans to create over 2.5 million jobs. But artificially created jobs will not boost the economy. What we need is increasing productivity. And you don’t get that through government programs.

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In a recent essay, Ron Paul wrote:

“A ‘job’ could be to dig a hole one day, and fill it back up the next, or perhaps the equivalent at a desk. This does no one any good. The value in that paycheck ultimately has to come from taxing someone productive.”

It doesn’t take much thinking to reach the conclusion that this closed-circle economic model won’t get us anywhere, and is, in fact totally counter-productive in the long-run.

But the bigger question – one that very few in Washington seem to be asking – is where is all this money going to come from?

On January 6,  the Congressional Budget Office (CBO) released the government’s latest budget forecast. The CBO estimates that the U.S. deficit for fiscal 2009 will be nearly $1.2 trillion!

This level of deficit spending is entirely unsupportable, especially for a nation as far in debt as we are already are. But this figure is not even the half of it… literally.

The CBO estimate does not factor in the spending increases and tax cuts proposed in Obama’s stimulus package. Nor does it include new healthcare promises. And that’s not all. The CBO estimate also includes numerous unlikely assumptions. To wit, that:

• There will be no more bank failures or bailouts (just yesterday Bank of America rattled the cup for a few more billion)
• Federal revenues will remain stable (no rising unemployment or corporate losses leading to falling tax revenues)
• The government will get most of its bailout money back (the assumption is that 75% of the TARP program funds will be paid or earned back)
• Interest rates on government debt will continue to decline (these interest rates are already at more than 50-year lows, and in a recent report I sent to 20th Century Prosperity subscribers, I showed why they will inevitably rise and how to profit)

When Casey Research analyst Bud Conrad accounted for what is not included in the budget deficit along with the goldilocks assumptions, he came up with a 2009 deficit of $3 trillion!

Thankfully, besides Ron Paul, there is at least one other politician in Washington asking the question, where is all this money going to come from. Speaking to the Washington Times, Michele Bachmann (R-Minn) said:

“[...] someone has to pay for [the stimulus package] whether it’s today’s taxpayers or their children and grandchildren. There comes a time when government simply cannot provide enough government jobs to bolster the economy. There comes a time when the taxpayers’ burden to pay for all of the projects is too heavy to carry. With the trillions in bailouts and stimulus packages that have already been passed and that are in the works, that time may be sooner than we think.

“Government should not take on the role of creating the jobs and buying the goods. Government should be in the business of establishing an environment in which businesses can thrive and play those roles themselves. Americans need a stimulus proposal that actually stimulates the economy.”

I heartily agree. But I am also realistic enough to understand that that is not what we are going to get. What we will get is a massive “stimulus” program with an emphasis on infrastructure, similar to the public-works projects of the Great Depression.

If you’re looking for a way to capitalize on the government-sponsored bull market in infrastructure, I expect there will be some upside to the usual cast of companies that benefit from government construction and engineering projects. Companies like Fluor (NYSE:FLR), Shaw Group (NYSE:SGR) and Jacobs Engineering Group (NYSE:JEC).

But the real winners – in the long-term – will be those investments that benefit most from rising inflation… precious metals and precious metals mining stocks.

Source: The Great Stimulus Boondoggle (And How to Profit)

These violent swings can be devastating for the short-term investor. But Jon Herring says market volatility is handing long-term investors a once-in-a-generation chance to buy world-dominating companies at bargain prices.

Jon recommends seven stocks that are price leaders or have pricing power.

This from Investor’s Daily Edge:

My belief is that in the near term, we are due for a relief rally. But in the larger scope, we are in the beginning stages of a long, slow recession… at best. At worst, we are facing a depression of generational magnitude.

So how do you prepare? How do you prosper in the years ahead?

First of all, if you are a long-term investor you should embrace the opportunities that are before you. Right now, and in the months to come, you will have countless opportunities to buy world-dominating companies at once-in-a-lifetime prices. I’m talking about companies that will be here (and that will be a lot larger) 20 years from now, no matter what happens in the markets or the economy.

I’ll get to that in a moment. In the meantime, let me stress something I covered in my previous article for IDE Unplugged. If you do not own any physical gold and silver, buy some immediately (if you can find it). The recent failures in the financial market, particularly AIG (NYSE:AIG), have begun a global run on the banks that is gathering speed.

Not to mention that with the current bailout, the powers that be have clearly indicated that they will inflate the currency to nothingness. The table is set for runaway inflation and ongoing weakness in the dollar.

And don’t mistake gold and silver stocks for gold and silver. They are not the same. And as we have seen recently, they do not always trade in lock-step. Monday was one of the biggest down days in history for mining stocks… while gold and silver were up strongly.

There is currently massive demand for physical gold and silver products. Many dealers are completely sold out of bullion products. And the rush for lifeboats hasn’t even begun.

We are already seeing shortages in the physical metals, with just a small amount of investor interest. What do I mean by a “small amount of investor interest”? Do a survey. Ask 20 people you know, friends, family, colleagues, etc. if they own ANY gold or silver investments (not counting jewelry). That would include stocks, coins, etc. It is likely that not a single person you ask has any position at all. Maybe a few.

Don’t wait until you hear about hard assets on the nightly news. By then it will be too late. Ensure your wealth with tangible assets, today! More on this in future articles.

Now, here are some suggestions for the money you hold in the stock market. This is no time to ignore proper asset allocation, holding most of your money in the U.S. market or mostly in stocks. Alex Green has written an excellent book, called the Gone Fishin’ Portfolio, which outlines an asset allocation plan that is low cost and low hassle and has proven to out-perform the S&P as well as the vast majority of money managers over the long-term.

Diversify your funds broadly across small cap stocks, large cap stocks, U.S. equities, international equities, emerging markets, real estate investment trusts, precious metals, inflation protected bonds, treasury bonds, high-yield corporate bonds and investment grade corporate bonds. Do this, and you can mostly forget about your long-term money (except for an hour each year when it comes time to re-balance) without worrying about your account blowing up.

Finally, if you’re looking to invest in individual stocks, the coming months will be a great time to pick up world-leading companies at once-in-a-generation prices.

Focus on companies with a sizable barrier to entry. Some investors liken this to a castle with a moat. For example, what would it take for another company to come along and compete with UPS? What would it take to set up a global distribution network, with all the logistics, thousands of trucks and planes, hubs networks, etc.?

While UPS might suffer a bit in the near term due to the economy, high fuel prices, etc… the chances are excellent that it will be a larger company five or ten years from now than it is today.

Also, in times like these (recession and the potential for high inflation) you want to focus on companies that are price leaders and companies with pricing power.

Price Leaders are the companies that compete best on price.

When consumers are skimping and saving and looking for a deal, where do they go? McDonalds (NYSE:MCD)… Wal-Mart (NYSE:WMT)… Dollar Tree (NYSE:DLTR). Not surprisingly, all of these stocks are near their all-time highs, despite everything else that is going on in the markets.

Companies with pricing power are ones that can raise their costs to constantly stay ahead of inflation, without eroding their business.

Some companies cannot raise their prices without causing a downturn in business.

However, companies such as Johnson & Johnson (NYSE:JNJ), Kraft (NYSE:KFT), Coke (NYSE:KO) and Proctor & Gamble (NYSE:PG) can bump up their prices to stay ahead of inflation without causing a downturn in their business.

If you want a Coke or a box of macaroni and cheese, your going to buy it, whether it is 10% more expensive than it was last year or not.

Owning a share of these companies ensures that your money will continue to grow as these businesses expand, and it will do so at a rate greater than inflation.

Source: Your Bear Market Survival Plan

Alan Greenspan gave the game away before Congress when he said, “central banks stand ready to lease gold in increasing quantities should the price rise.” He was telling Congress that the leasing of central bank gold was to suppress the price of gold, not to earn money on a dead asset, as officially stated.

This manipulation, plus reported shortages in physical gold, means the yellow metal represents extreme value right now.

This from Jon:

At the highest level, the manipulation of the metals market is meant to conceal the mismanagement of the U.S. dollar so that it might retain its function as the world’s reserve currency.

Richard Russell of the Dow Theory Letters summed it up well when he wrote:

Rising gold is a red flag – if gold rises too rapidly, it attracts attention, it makes headlines, and then people ask questions. Rising gold might even give the whole plot away. You see, the fiat currency thesis is basically a fraud. It depends on a certain amount of systematic inflation (about 2 percent a year) in order to survive. Next question — why do central bankers want the fiat money system to survive? Simple, it’s their livelihood. It’s what they live on. It’s their ticket to power.

You might ask why the bullion banks would play their part.

The answer is virtually risk-free profits. The central banks lease the gold in their vaults at extremely low interest rates, often less than one percent. In addition to facilitating hedges for miners and jewelers, the bullion banks sell the gold they’ve leased at a very low interest rate and then invest those proceeds primarily in government bonds at a much higher rate. This is essentially a short sale, since they are selling something they have borrowed and the increasing supply on the market pressures gold to the downside.

The central bank makes a little something on their gold holdings. The bullion bank earns a spread. And the government bond market is supported, helping to strengthen the dollar. It all works out well… as long as the price of gold is flat or falling.

Now, can you see why the central banks and the bullion banks have a vested interest in suppressing the price of gold?

But this is not the extent of the issue…

For years, the central banks have been lying about their gold reserves by counting gold that they have loaned out or swapped as gold in the vault. GATA suggests that Western central banks have roughly 15,000 tons in their vaults, compared to the 30,000 tons they have on record. The difference is the amount of gold that has been clandestinely fed into the market to suppress price of gold and support the dollar.

Where is this heading?

This was all relatively opaque and easily hidden until recently. What we have seen in the past year, however, is a significant disconnect between the paper markets for metals and the physical markets.

If you were simply watching the futures markets and the spot price, you might assume that demand for precious metals has fallen through the floor, especially considering that gold has experienced the largest correction in the last 25 years. But that’s not the case at all.

Bullion dealers and mints worldwide have reported shortages of metal, exceedingly long delivery times, and more buying than they have witnessed in decades. Not exactly the backdrop you would expect, given such a significant correction.

I won’t go into all the reasons why gold will likely prove to be an extreme value under $850 an ounce and silver below $15, but if shortages already exist with this relatively low level of investor interest in the metals… then just imagine what will happen when the rush for lifeboats really begins.

There are a lot of ways to invest in precious metals… mining stocks, ETFs, exploration companies, futures. But your first resort and the foundation of your portfolio should be possession of the physical metal. Gold and silver that you can hold, touch and feel. Money that depends on no one else’s obligation… not a government, a bank or a brokerage firm.

Buyers in India are already paying a premium over the spot market price for gold. As are buyers of gold and silver bullion coins on auction sites like Ebay.

I expect as the manipulation in the paper market becomes more apparent in the years ahead, the spot price of gold and silver will soar. So will the shortages of physical metal.  If/when this happens, the premium people are willing to pay to get their hands on the real thing will jump sharply.

Source: Why You Need Gold You Can Hold… NOW!