A New "Link" Has Been Added

An interesting web site called "NuWire Investor" has been added to our list of "Links." This site is interesting because they offer quality, objective information about alternative investments such as real estate, commodities and franchises. They also provide listings of pre-screened investment opportunities, plus a substantial library of alternative investment articles that you won't find anywhere else.

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Junk May Not Be Trash

Kiplinger's Personal Finance suggests that yield-hungry investors may want to put some money into junk bonds now. They're relatively scarce in finance, housing and retail, the current trouble spots.

The yield gap between junk bonds and Treasuries is six percentage points. That's a big enough spread to indicate that the recent rally in junk bonds has more room to run.

Because defaults and downgrades are more common in junk bonds than in other types of bonds, you should use a fund to invest in this category. Yields on junk bond funds may be around 8% now.

It should be noted that in the past when junk bonds yielded six points or more above Treasuries, rallies subsequently narrowed the spread delivering investors gains as well as current income.

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Politicians Are Toxic For Your Investments!

That may not come as any news for most seasoned investors, but there may be a cure at hand for the damage that Congressional politicians do to us whenever they are in session.

On May 23, 2008, the new Congressional Effect Fund was created. This is a no-load fund with a $1,000 minimum.

The fund invests in the stock indexes when our Congress is out of session, and in interest-bearing accounts when they are in session. It's that simple.

A study conducted by economists at both the University of Cincinnati and the University of Missouri at Columbia found that since 1897, 90% of the gains in the Dow Jones Industrial Average came on days when Congress was out of session. Thus a dollar invested in 1897 with the strategy of going back to cash whenever Congress met was worth $216 by 2000. But an 1897-dollar invested on the reverse strategy was worth only $2 during that same time period.

The correlation was no coincidence. And why is this the case? Because when the Congress is in session, it often raises taxes on individuals and businesses; or it increases regulations that hurt publicly-traded companies.

So it may be interesting to follow the progress of this new no-load mutual fund, however, I would not seriously consider investing in the fund because of its rather extreme 1.99% expense ratio.

In any event, you can learn more about the fund by going to our "Links" section and clicking on "Congressional Effect Fund."

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WILL WE EVER LEARN?

This is the title of an editorial appearing in the September 29, 2008 edition of BusinessWeek magazine.


In the '90s, the smartest people were telling us that the Internet Revolution had vanquished the business cycle by sending productivity on a perpetual upward climb. Etoys and Pets.com were in their glory. Economic laws no longer applied. And then the bubble burst.

In the '00s, the smartest people were telling us that Wall Street had vanquished the business cycle by gaining mastery over risk. No mortgage was too absurd, no leverage too great, no structured product too reckless when risk-spreading models were so brilliantly engineered. Commonsense laws no longer applied. And then the bubble burst, again.

So the big question, as we absorb what's happened to Freddie and Fannie and Lehman and AIG and Merrill and, oh yes, Bear Stearns, is this: Do we have the capacity to learn? Despite temptation, can we resolve to assume that if something sounds crazy, it probably is?

The business cycle is real. The economy has some direct relationship to supply and demand. Housing, which has grown at roughly the rate of inflation for many decades, probably can't grow a whole lot faster over time. You can't sustain a market based on lending when the borrowers don't have the resources to pay back the loans. It's all pretty basic!

Any comments?


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BOB BRINKER ALERT!

If you are experiencing a problem in hearing Bob Brinker - especially on Saturdays due to sports on radio station WLS - it is very easy to hear the program on the Internet by going to www.kabcam.com . This is the ABC Talk-Radio station in Los Angeles.

You can also find a complete listing of all the stations which carry Bob Brinker's MoneyTalk program by going to www.bobbrinker.com

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Cash In On Commodities

Over the past 140 years, the typical commodities bull market has lasted about 18 years. The current boom kicked off in 1999, so it may have another nine years left to run.

If you want to put assets into the hard assets themselves, there are dozens of exchange-traded (ETFs) that track a commodities index. iShares S&P GSCI Commodity Indexed Trust follows an index heavily weighted to energy prices while PowerShares DB Commodity Index Trading Fund follows an index of crude oil, heating oil, aluminum, corn, wheat, and gold.

Another option is to invest in exchange-traded notes (ETNs) such as iPath Dow Jones-AIG Commodity Index Total return and RICI-Total return Elements, both of which track diverse indexes.

ETNs are new but some believe they won't generate taxable income until they're sold or redeemed, and favorable long-term capital gains rates might apply.

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Words of Wisdom

"The government has nothing to give to anybody that it doesn't first take from someone else!"

-Henry Hazlitt


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Focus On Financials

Forbes magazine suggests that investors who buy financial stocks this year will probably be winners because they have figured out that things aren't quite as dire as the hyper-ventilating media experts and short sellers have led the markets to believe.

Mark-to-market accounting contributes to the gloom. The rules say that banks have to value derivitives like swaps and mortgage securities at their current market prices.

The rules make no provision for what to do when there is no market. Thus, banks write everything to such low valuations that smart money steps in to buy up the bargains.

NOTE: Savvy investors might include bonds and preferred stocks issued by major firms such as AIG, Citigroup, and JPMorganChase.

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It's A Confidence Game

For safety, make sure that you're invested in a true money market fund. Just ask your broker or fund sponsor whether the fund is registered with the SEC under the Investment Company Act's Rule 2a-7.

The rules require such funds to (1) buy high-quality securities; (2) no more than 5% may be in any single issuer (except government); and (3) the weighted average maturity must be no more than ninety (90) days.

Your safest approach is to use a money market fund operated by a major financial firm because a major firm will have both the ability as well as the incentive to keep the value of their money fund shares at $1 - even if they suffer losses.

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