Interest Rates Continue to Rise- New Holdings Added! June 9 2009

Marc's Notes:

For 3 years now I’ve have been advising clients to keep a good portion of their money safe and out of the market in government short term bond funds and bank cds.
Those that followed that advice have kept their money out of the market and as a result kept their money. I advised offsetting the risk of a US dollar devaluation eating into your bank cd purchasing power by holding funds that rise with interest rates. Interest rates rise as a result of excessive money printing by a government hell bent on bailing out firm after firm for their reckless behavior. With the bailouts now going into the trillions, our forecast of rising interest rates is coming true and long term rates are rising at an alarming rate. This recent rise in rates threatens the continued use of public funds as the more rates rise, the more debt the government will have to issue, the higher rates will go.

But the more money they print, the more interest rates will eventually rise. A vicious and self fulfilling cycle that could spell disaster in the form of more loss of purchasing power as the US dollar continues to fall in value.
I am now becoming more alarmed as the fall in the US dollar is increasing which may give way to an even more vicious slide in the US dollar. Investors continue to ask me whether it is time to sell US debt and get out of bank cds and the treasury funds
Up until now I have told investors to hold these. With the recent increase in rates, I am now suggesting you consider moving some funds from the safe funds   SHY   TIP and  VIPSX into a shorter term variety of the same kind of funds.

You may want to look into:
BIL  The Barclays capital 1 to 3 month t bill fund  and SHV  The Barclays short treasury bond fund. These funds don’t pay as much as the previous funds  SHY  TIP and VIPSX but offer more stability in a rising rate environment. Although our previous funds were denominated in US GOVT debt instruments for the most part, they are of longer duration, meaning they are more sensitive to interest rate increases and that is indeed happening now. I keep saying right now the return OF your money is more important then the return ON your money because of the markets instability. For this reason, and because of the alarming rate of fall in the US dollar, it may be time for investors to consider settling for less yield in exchange for more safety and less volatility.
The previous funds have a 12 month movement range of up to 12 % or more, so the risk is real. IF the US dollar accelerates downward even more, these funds could suffer more significant losses.
These new, more stable and shorter term funds will offer up more protection for your KEEP SAFE Monies. You may also consider Treasury only money market funds, but if you invest in a money market fund, the only one I would put my money in is a US Treasury only money market fund. Make sure you ask whether your money market fund is in only US Treasuries, as no other type of money market fund is as safe in my opinion.
To offset risks even in these funds, I continue to suggest holding a "short"  long term bond fund. This is similar to an interest rate fund that rises when rates rise. Therefore if the US dollar continues to fall, the short long term bond fund and the interest rate fund will rise to offset your loss of purchasing power in your bank cds and Treasury funds.

Sound confusing?  Well, it may at the onset. But you only need to know this. The US dollar rises and falls in how much it can buy with each dollar you hold. By holding only short term bank CDS or short term Treasury finds, IF interest rates rise, you want to be able to capture the rising rates. And short term bank cds and treasury funds adjust to the new rates each time the issue rolls over.  A 3 month bank cd will roll into a higher rate in 3 months. The Treasury funds actually can adjust daily.

So don’t lock yourself up in a bank cd or any other kind of IOU longer then a couple of months. If you do, and rates rise, you wont get the higher rate. And although short term cds and funds pay less in interest, right now the risk is in losing your money. So I opt for more security rather then a higher return.
And offset any possible further US dollar fall with an interest rate fund or two.
You might look into the ones I suggest, TBT  the UltraShort 20+ Year Treasury fund or RRPIX    the ProFunds Rising Rates Opp Investors fund . Keep in mind these funds will fall in value if the US dollar strengthens, but if that happens, it only means your US dollars you hold are rising in value. In this way you they offset each other, and you keep your money no matter which way the US dollar goes. You may continue to hold SHY  TIP and VIPSX for some of your "keepsafe" funds, but consider moving a portion to these new funds if interest rates continue thier ascent and accerlerate.

And as always, accumulate physical gold and silver in your possesion. The only "real" money.

Other Holdings:

USO- up nicely- Hold for more but put a stop in half your position at 4 bucks.

SLV- last update we mentioned putting a stop in around 14.80.

New Speculation Play- (Gamblers Only) 

UNG  Natural Gas- All beat up. Near an all time low.  Like SLV and Oil a few months back, a similiar play. Probably a 50 % downside risk and 500 % upside or more. There is only so much farther natural gas will fall. UNG had a 12 month high of 63 and low of around 12. 

It is now around 14. Can it go lower? Of course, but natural gas aint going to zero!

I love this play for long term potential. I am buying a good position in the next few days like I did in USO and DXO (Oil) and SLV (Silver). Those are really in the black now and natural gas should be the same in a year or less. (no guarantees of course but good enough for me to put my money in!)

Like SLV and Oil of a few months back, buy when there is blood in the streets. With natural gas a cleaner energy source then coal or oil, and at an all time low in a soon to be inflationary environment, I mean, really, who are we kidding. Too tempting for me NOT to add a hefty position.  Option nuts should consider looking into selling the puts. (This is not a recommendation to buy or sell! See disclaimer at the bottom of this newsletter.)

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All for now, and all the best to you!

Marc