Using ETFs to Profit From Rising Interest Rates

Inflationary alarms -- increasingly loud -- are sounding worldwide. Europe, Canada, Great Britain, emerging markets such as China, India and Brazil have, or are contemplating, raising interest rates.

My recent article on crisis investing noted 4 sectors you should be in: oil, real estate, gold, and inverse interest rate ETFs. Here we will look at the fourth -- and most speculative -- sector: interest rate sensitive ETFs.

Walking the Edge of the Precipice

For now, the U.S. continues to pursue an easy money policy.  Read the Full Article Here

Crisis Investing -- 4 Sectors You Must be in Now

Spring comes early in central Florida. Wrens sing, wild jasmine flowers in the woodlands. Today, as I write this, I'm in a quiet, small town cafe. Both customers and the early-morning sun are slowly filtering in -- a peaceful, idyllic scene.
But ... reality is in the headlines. North Africa aflame. Dire warnings of fiscal catastrophe here at home. Conservative governors clashing with suddenly indignant public employees. One gets the feeling that things could spin quickly out of control.
So how does one invest in this environment?  Read the Full Article Here

Collapsing Bonds? Look at the Trends Now!

Did collapsing bond markets last November signal the end of the three decade-long bond bull market? Almost all bond ETFs peaked on or near November 4 of last year. Since then some (perhaps unexpected) trends have emerged.
ETFs are useful trend indicators. Since they are composed of dozens, even hundreds, of securities, individual security movements have little effect on price. Lets look at five ETFs to see what is happening.  Read the Full Article Here

Housing's 50% Off Sale -- Time to Buy the Home Builders?

Commodities are shooting up -- 20% or more -- in just the last 3 months. The most common explanation? Accelerating inflationary expectations. No sign of this in the U.S. housing market though. That market drags along near multi-year lows. Indeed, the one asset the Fed wants to inflate, housing, shows few signs of revival.
But, is the housing market now bottoming? Well, maybe. After falling over 50% the last 3 years Zillow says my central Florida house has actually increased in value two months running now. Nothing to get too excited about -- total increase is less than 3%. Nonetheless, it is welcome news.
Why It Is So Hard to Reflate the Housing Market   . . .  Read the Full Article Here

How Former Canadian Income Trusts Can Protect Bond Investors From Dollar Debasement

Bonds, especially Treasuries and municipal bonds (munis), are a major component of American retirement portfolios, be it pensions, IRAs, annuities, or mutual funds.
The recent sharp fall in bond prices, which started last November, has sent tremors through fixed income markets. With an apparent end to the 30 year old bull market in bonds, it may be time to look at alternatives.
How Safe Are Treasury and Municipal Bonds?
Treasuries, munis, and other bonds may have hit their highs early last fall. Since then -- about the same time Quantitative Easing 2 (QE2) kicked in -- things have been mostly downhill for bonds.
Treasuries have the full backing of the U.S. government,   Read the Full Article Here

Natural Gas: The Last Undervalued Commodity

The worst commodities of 2010 just might be the best in 2011. It often works that way. So, what was the worst of 2010? Natural Gas (down some 20%) and cocoa (down some 7%) take the loser's prize! And, sure enough, both are off to a roaring start in 2011.

We all love (and maybe even dream of investing in) cocoa -- aka chocolate. But, for now, let's ignore that tempting choice and look at natural gas.

Why Is Natural Gas So Cheap?
Natural gas prices are low for good reasons.  Read the Full Article Here

Peaking Bond Markets: The Reversal of a 30 Year Trend

Is the three decade long bull market in bonds over?  It certainly seems that way.  Bonds have been retreating across-the-board since early November.  QE 2, which was supposed to bring rates down, simply isn't enough -- even in the targeted middle range of the yield curve.

So what happened in early November?  I don't know. Maybe it was the announcement of QE 2.  Look at Vanguards Total Market ETF: BND.




Consider:

• Treasuries are in an downtrend across the spectrum:  See the 2 year here, the 5 year here, the 10 year here, and the 30 year here.  All show declines after early November peaks. The benchmark 10 year in particular shows an alarming drop.
• Municipals suddenly collapsed  and show no sign of recovery.  PCK, a leveraged California Closed End Municipal fund is down almost 20% since November 7.
• Corporates (LQD) mirror the declines.  Surprisingly, junk bonds (JNK) have held up somewhat better.
• Emerging Markets (EMB) are not immune.

Pundits have long touted the debasement of the U.S. dollar but now the unease is spreading.   Perhaps last month's precipitous drop in munis was a wake-up call.  It will take a lot to change the public's view of bonds as a "safe" investment, but that may now be starting.

The Fed seems to be losing control.  Former Fed Reserve Chairman Alan Greenspan warns that on going deficits will lead to a bond crisis.   Mr Bernanke is between a rock and a hard place.  Tightening may crash markets.  But . . . QE contributes to the perception (reality?) of dollar debasement -- driving interest rates up anyway.  To make matters worse, QE's newly printed dollars flee U.S. shores, contributing to overseas inflation which may precipitate currency wars.

All fixed income instruments will follow treasuries down if rates rise.  You may find a possible haven in convertible bonds.  Blue-chip, dividend paying, stocks may be your best bet for a "safe" investment from here on out. Do your own due diligence.

The bond market is huge ($91 trillion worldwide) -- more than twice the size of equity markets.  If prices continue to decline, some this money will flow into equities and commodities, pushing up inflation.  Commodities are arguably in a bubble while blue-chips are probably not (yet).  Once inflation gets started, it is very difficult to stop. You can argue over what is inflation but precise definitions of inflation are meaningless to most people.  If the price of fuel goes up . . . it is inflation to them -- even if wages are stagnant or falling.

Keep an eye on the Fed.  It seems QE is needed on a ongoing basis to prop up the economy.  At the slightest sign of tightening (such as the pending expiration of the Build America Bond program) markets head south fast.  Bernanke says he is not going to allow deflation, yet the Fed has to pump harder and harder just to stay even.

The ground world economies are standing on is getting steadily narrower, sooner or later we will fall either into the pit of deflation or the excesses of inflation.  Either way it won't be fun.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours