Wilbur Ross is a multi-billionaire and legendary investor. He made his money by buying hated assets – like steel when nobody was touching it and Japanese banks when they were saddled with debt. (Sound familiar?)

So what is he buying now? Anything that has been hurt by high oil prices. He just purchased an Indian airline, for example.

Mr. Ross is a confirmed contrarian who likes to run ahead of the Wall Street pack. He loves to buy when the market knocks down the prices of assets and companies he thinks will bounce back. Banks, insurance companies, mortgage companies, home builders, and some retail companies are the ones now getting killed by the market.

If you think we’ll have a thriving real estate market again (and it’s only a matter of time), mortgage companies and home builders would be good investments. Choose the ones that have been punished unfairly by the market… that haven’t sold off their revenue-producing assets… that have management who weren’t reckless but simply got caught up in a falling market. In other words, you still have to do your homework and pick the best of the bunch.

Because you have a little less money than Mr. Ross, instead of investing in these companies right away, keep an eye on them. When their share prices begin to go up, pounce. I want you to see the bottom rather than try to guess when it’ll come. You’ll be leaving only a little money on the table… and it’s a much safer way to invest.

[Ed. Note: When you see a bunch of investors looking in one direction, look the other way. As contrarian investor Andrew Gordon has discovered, going against the grain can often be your best chance to profit. Get Andrew's recommendations for low-risk investments with high profit potential right here.]

Last year, eight out of 10 major sectors went up. The reverse is happening this year. Eight out of the 10 are now in negative territory. Materials and energy are the only holdouts. Is either one worth investing in? Or are they just laggards that will be heading down any day now?

As a matter of fact, the materials sector had a lousy June. It fell 2.5 percent. And it certainly looks like materials is following the rest of the market down (though belatedly). That leaves energy.

But energy is a tricky sector. It covers everything from the oil majors to small alt-energy start-ups. Some of these niches are doing well; others, not so well. My advice is to focus on oil services. That industry has gone up more than 15 percent in the last three months. The main markets (except for Nasdaq) went down around 10 percent during the same period.

I like the rig contractors. I’ve recommended a couple of them to my subscribers, and they’re doing great. And since the beginning of the year, they’ve done better than most other oil-related stocks. Just let the market tell you which ones to invest in. Look up a few and put them on a six-month chart. See which ones rose the highest in that time, and invest in the top two or three.

[Ed. Note: In the coming years, the energy companies will spend nearly $10 trillion (yes, trillion!) finding and extracting new sources of oil and gas. Andrew Gordon has uncovered two best-in-class drilling rig companies that will be on the receiving end of this tidal wave of cash. And he's ready to reveal them to you. Learn more here.]

About a year ago, my father invested in a Merrill Lynch bond. I looked it over… noted its high rating… and saw nothing wrong with it.

Not long after that, I was speaking to a vice president of Bank of Nova Scotia. I asked him about the bank’s exposure to the subprime crisis. He said it was negligible. I then asked him about the GMAC loans it had recently bought. He said they were fine… the defaults lower than they had projected. So I added the bank to one of the portfolios I recommend to my subscribers.

The Merrill Lynch bond has since plunged and then rebounded. And the Bank of Nova Scotia’s shares are almost exactly where they were when I made my recommendation. That’s much better than most North American banks have done over the past year.

No harm, no foul?

I’d be the stupidest guy on the planet if I thought there were no lessons to be learned just because those investments didn’t turn to mush.

Fact is, my assumptions have changed.

Had I known then what I know now, I would not have touched that Merrill Lynch bond with a 10-foot pole. And I wouldn’t have cared if a high-ranking bank official swore to me they weren’t exposed to the U.S. subprime mortgage market. I wouldn’t have believed him. I definitely would have put off investing.

The housing bust, subprime mess, credit crunch, and resulting financial crisis have done more than just bring the market down. They’ve led to a stunning collapse of confidence that has infected the entire investment world. Banks don’t want to lend to each other… institutional investors no longer know what’s safe… and retail investors don’t believe anything anymore.

How can they? The rating agencies have proved beyond a shadow of a doubt that they do not understand derivatives. Their ratings are worthless.

And the brokers and analysts who follow every twist and turn the market makes? The last year must have made them so dizzy that they can’t see the forest for the trees. They’ve been making one bad call after another.

A few months ago, for example, Buckingham Research estimated that Bear Stearns had $35 billion in liquid assets and borrowing capacity, enough to operate for 20 months. Turns out it had enough for three days. This is one of dozens of examples I could cite.

There’s so much uncertainty in the investment world that we can no longer fall back on our long-held ideas of what makes a safe investment.

Munis? Sorry. Thanks to the shaky status of the monoline insurance companies (which insure munis), they’re no longer the safe investments they used to be.

Money market funds? They’ve been hit too. Some brokerages are covering losses with their own money rather than pass them on to those who invested in these supposedly safe havens.

Good move. I don’t blame them.

What’s left? Oh, yes. How could I forget U.S. government bonds? Okay, they’re still safe… but are they really investments? I mean, can anything you get a negative return on be considered an “investment”?

I don’t think so – and that’s exactly what you’re getting with them. A 10-year Treasury note would give you a 4.01 percent yield. Meanwhile, inflation is running at 4 percent, and that excludes food and energy prices. The real rate of inflation would be much higher.

Investing in U.S. bonds is worse than giving the government a free loan. Instead of the government paying you for the loan, you pay the government for the privilege of loaning it your money.

Do you feel honored? Or cheated? Well, I can’t speak for you. But this is the kind of honor that could land me in the poorhouse. I’d say cheated.

So… is there any investment that is truly safe?

There sure is. Australian government bonds have never looked better than they do right now. And this is the perfect time to jump into them…

Not only because Australia has one of the strongest economies in the world. Unemployment is at a 33-year low. And prices of its two big exports – coal and iron ore – are at historical highs. It doesn’t hurt that around 66 percent of Australia’s exports are commodities.

And not only because Australia is effectively shielded from the problems we’re having in the U.S. They trade mostly with fast-growing Asia. In fact, 60 percent of their exports go to Asia.

The biggest reason the timing couldn’t be better is because the Aussie government has been raising its key interest rate to stave off inflation. They’ve raised it all the way to 7.25 percent. They’re at or near the top of their rate-raising cycle.

Other interest rates, including bond rates, feed off this basic government rate. If this rate is more than twice as high as the U.S. benchmark interest rate, then most of the other rates will be too – including Australia’s government bond rates.

Sure enough, the Queensland 10-year government bond pays a nice 6.99 percent interest. That’s not quite twice as high as the equivalent U.S. government bond rate, but it’s close.

What’s more, you can buy these bonds for a discount. And the discount isn’t going to get any better. Here’s why…

The Australian government paused its key interest rate hikes three months ago. That means, for now, interest rates have peaked in Australia. The only way they would go higher is if the Reserve Bank of Australia resumed rate hikes. That’s possible, but unlikely.

And if you don’t want to tie up your money for 10 years? There’s another group of Australian bonds that could be perfect for you. I’m talking about corporate bonds, including bonds issued by GE – one of the biggest companies in the world.

These GE bonds are triple-A rated – the highest rating bonds can get – which means they come with very little risk. Usually, the lower the risk the lower the yield. But these highly rated bonds offer high yields of 7.97 percent. (Ask your broker for 8.5 percent coupon February 2011 maturity bonds from GE in Australia.)

Or you might prefer Australian bonds from Nestle, the huge Swiss firm. Its bond is double-A rated and offers a yield of 7.0 percent. (Ask your broker for 7.25 percent coupon January 2011 maturity bonds from Nestle in Australia.)

Because these bonds mature in 2011, they would tie up your money for less than three years. To get in before prices go higher (and yields go lower), you should buy Australian bonds NOW.

Buying international bonds is pretty easy… as long as you go to the right place. You can always go to a full-service brokerage specializing in international bonds. But many of the bigger brokerages are able to trade them, too, so call a few and find out.

You could also call up your broker. Ask him to recommend someone who does overseas bonds.

[Ed. Note: Sometimes, as ETR's Investment Director Andrew Gordon just explained, making money is as simple as looking overseas. In fact, there's plenty of money to be made in the markets. It's practically raining cash - and all you have to do is set out a bucket to catch your share. Andrew can show you where to put the bucket.]

Wall Street has its own less helpful spin on "live and learn." It’s "read and retch." So much of what we hear and read from so-called experts is simply garbage. Worst of all, it can lead to bad investment decisions.

So be careful out there. Question everything. And come to your own conclusions in your own time. We’ve been asked to swallow some whoppers. Do these sound familiar?

1. Home prices never fall. After we saw the real estate market crash in Japan in the late 1980s, how could we fall for this one? But fall we did.

2. The housing and credit crisis is over. Not true a year ago, six months ago, or now. It will continue to plague the economy for the rest of the year… at least.

3. Stock markets go up in the long run. This is true if the long run means 15 years or more. But markets can remain flat or down for over a decade at a time. That’s no blip in my book.
 
4. Bank stocks will be supported by their dividends. Was this wishful thinking or just plain naivete? Citibank, Washington Mutual, KeyCorp, and others have cut dividends. Many more banks will follow.
 
It’s not easy to figure out what’s true and what isn’t. Keep reading and listening. But most important, stick to what you know as much as you can. It may be boring… but it’s also much safer.

[Ed. Note: Andrew Gordon, ETR's Investment Director, recommends that you stick to what you know. If you know that you can still make money - even in this sagging economy - you're on the right track. Learn how you can get your portion of a $300 billion cash pile looking for a home.]

It doesn’t matter whether we’re in a recession or an economic slowdown (which falls just short of a recession). The main point is, the economy is hurting.

So, what’s the cure? I posed that question in ETR a few weeks ago. But of all the possibilities I suggested, only one makes sense to me: We should look for the end of what got us into this. The housing mess. It needs to straighten out. When housing prices begin to pop up again, we’ll start spending again. It’s that simple.

The one thing you cannot do is depend on the National Association of Realtors (NAR) for reliable information. It’s been saying a bottom is just around the corner for about a year now. It is a biased industry shill. It is not to be trusted.

Instead, look for housing inventories and foreclosures to drop. And listen to what home builders are saying. They’re the first ones to know what’s going on, and right now they’re saying the market looks brutal. They don’t want to raise expectations prematurely and unnecessarily disappoint shareholders. When they start to change their tune, you’ll know the bottom really is near and the economy is rebounding.

And how do you invest in a rebounding economy? Transport will start shipping more things months before you see it in the stores. Basic material companies should also pick up with manufacturing recovering. That’ll get you started.

[Ed. Note: It's easy to spot where there's big money to be made - especially if you have expert advice. Andrew Gordon, ETR's Investment Director, has spent the past 25 years evaluating companies and appraising investments. Help him help YOU make a lot of money.]

Who’s making money off of high gas prices?

You’d think it would be the oil refiners. But it’s not. Their margins are so small as to be nearly invisible to the naked eye. So you don’t want to invest in them.

The big oil companies are making loads of money, but their share prices are barely going up. That’s because investors have noticed that even though their profits are growing, their oil production isn’t. Exxon Mobil, BP, and Royal Dutch Shell showed lower oil production for the latest quarter they reported on.

How about those companies making hybrid cars? Should you invest in them? Careful. Hybrids and electric cars are a fraction of what auto manufacturers sell. You’d be investing with your heart and not your brain if you go down that road.

The one gas play you could make is with the rig companies. Oil companies are desperately searching for more sources of oil – and at the current price of crude, they can afford to pay for as many drilling rigs as they want. Except there are only so many to go around, and the wait for new rigs is getting longer and longer.

Companies that make onshore or offshore drilling rigs are taking in record profits. When almost all sectors of the stock market are going down, this little-known corner of the oil patch is making big money. And that’s where you want to invest your money.

[Ed. Note: We're in a recession. But in certain corners, it's raining money. To get your fill, you just need to know where to put your bucket. Investing expert Andrew Gordon can show you how.]

"The average man doesn’t wish to be told that it is a bull or a bear market. What he desires is to be told specifically which particular stock to buy or sell. He wants to get something for nothing. He does not wish to work. He doesn’t even wish to have to think." – Jesse Livermore

ETR reader Judith wrote in wanting to know why the word "bull" is used for a rising market and the word "bear" is used for a falling market.

First of all, let me point out that these two terms have become part of everyday language. You can be "bullish" (or optimistic, thinking something will get better) not just on the market but on the Red Sox, for example. And you can be bearish (or pessimistic, thinking something will get worse) about Detroit or Pittsburgh or about their baseball teams.

My colleague and office mate Jon Herring tells me "bull" comes from bulls tossing things up in the air with their horns. And that "bear" comes from bears swiping down with their claws.

That makes perfect sense, doesn’t it? But it didn’t prevent me from doing some research.

I found out that an old meaning of the word "bull" (as a verb) was "to inflate, swell." That makes sense, too, in describing a market going higher or getting bigger. It was first used in a stock market sense in 1714.

And just five years later, the phrase "sell the bearskin before one has caught the bear" – referring to anything with falling prices – became popular among investors. A bear was described as "one who sells stock for future delivery, expecting that meanwhile prices will fall."

Just think: Almost 300 years ago, people were celebrating "bull" and bemoaning "bear" markets… when today, we know you can make money in both.

[Ed. Note: Bull market, bear market - Andrew Gordon can help you find the safest stocks with the highest profit potential. Get the details here.

Want to know the meaning of or background behind an investing term you keep hearing? Send your questions to Andrew at AskETR@ETRFeedback.com. Include your name and hometown, and he may answer your question in Early to Rise.]

Take my word for it. We’re in a recession. It affects you as an investor and as a consumer. Is there anything that can bring us out of this economic tailspin? It’s time to ask a few questions about the leading candidates:

1. Inflation. If we can stop inflation and make the consumer feel better about spending, the U.S. could spend its way out of the doldrums, yes?

2. Fed cuts. Can the Fed stimulate the economy by cutting rates even more?

3. Employment. Will we have to wait for jobs to start increasing again?

4. Housing. Will nothing good happen until the housing market bottoms and real estate prices start to go up?

5. Credit crunch. The banks are in crisis. They’re also not lending as much as they used to. Can the economy rebound while banks are floundering?

6. Iraq. Getting out would save the U.S. boatloads of money. But is that a difference-maker?

7. Stimulus checks. They sent ‘em. We’re spending ‘em. Could it really be that simple?

One of the above solutions makes sense to me. But I want to know what you think. Let me know in the comments section of ETR, right here. And then… I’ll tell you what I think.

[Ed. Note: Can't wait to find out how to recession-proof your portfolio? Learn how to grab your share of a $300 billion cash pile looking for a home...]

Sooner or later, the market is going to hit bottom. And when it does, you’ll want to be invested in small caps (companies with capitalizations of around $3.8 billion or less).

Since 1979, according to Ned Davis Research Inc., the small-stock Russell 2000 index has returned 19.6 percent in the first three months after a market bottom, against 13.6 percent for the large-cap Russell 1000.

The superior performance of small caps can last a lot longer than three months, too. When the last bear market ended in 2002, small companies dominated for three years.

Why do small-cap companies rebound better than bigger companies?

1. Small caps do well emerging from a bear market because they get pounded during a bear market. With less financial and market muscle than bigger companies, they have the reputation of not faring as well when the economy slows. Investors consequently flee to bigger and supposedly safer companies. So when the economy and market begin to look up, these maligned small companies need – and get – a bigger bounce just to get back to "normal" valuations.

2. Even modest boosts in sales can have a big impact on the revenues of small companies. That’s not the case with bigger companies.

I like small companies with growing international sales. They shouldn’t fall as much as other small companies during a bear market. Plus, when the market rebounds, they’ll get the benefit of growing domestic and international sales. For a small company, that can be more than enough to grow profits and see share prices rise.

Most stock search engines will let you cull companies by market cap. But to see what they have in international sales (if any), you have to dig a little deeper. Still, it’s not hard. Most companies will mention global sales in their profiles. One place to find a company’s profile is on its main page in Yahoo’s finance section.

[Ed. Note: Yes, the economy is sick and getting sicker. But that doesn't mean your investments have to suffer. In fact, now's your chance to get a piece of a $300 billion cash pile looking for a home. Continue reading here...]

Chances are your actively managed mutual fund is disappointing you. You’d probably get better returns investing in an index fund that charges lower fees.

An index fund goes up and down with the index it follows. If it’s a large-cap growth fund, for example, it follows an index made up of large companies in traditionally high-growth sectors like tech and health care. A managed fund picks its own big growth companies. If it picks them well, it does better than an index fund. If it doesn’t, it does worse.

For a managed fund to stand out, all it has to do is perform better (or less poorly) than its related index. It doesn’t necessarily have to make a profit. For example, if the index falls 10 percent and the managed fund drops "only" 7 percent, that fund is considered to have done well.

It seems that the bar has been set pretty low, doesn’t it? Maybe we should set it even lower…

So far this year, in only three of nine categories have the majority of funds managed to beat their index. If you have invested in a large blend fund (blend incorporates both value and growth), a small blend fund, or a small value fund, congratulations. More likely than not, your fund is outperforming its related index. (More than 50 percent of these funds do.)

But if you have invested in a growth fund, your investment could be in trouble. Less than 30 percent of those funds are beating their index.

Does that mean you should switch to a large or small blend fund or a small value fund? No. These three fund categories are beating their indexes by a mere half-percent or less. It’s hardly worth the effort.

But when considering funds in the future, remember that the higher fees you pay for actively managed funds don’t necessarily get you better results when the market goes down. Index funds do just as well – or just as poorly.

[Ed. Note: Low risk and safety are two hot commodities in the investing world these days. ETR Investment Director Andrew Gordon can give you both - plus the best chance of profiting - in practically any market. Learn more here.]  

"Bagel land?" I would have thought the term had something to do with tennis – as in "That first set I got bageled" (meaning shut out, six games to none). But no. It’s a financial term meaning "zero" – as in "Your stock is heading for bagel land." Hmm. I’m in the middle of the financial industry and even I don’t know all the expressions being bandied about.

This is a much bigger problem for people who only take a casual interest in investing. They’re either utterly lost or completely intimidated, according to an AARP (American Association of Retired Persons) survey. My editor – Suzanne Richardson – e-mailed me an article on the survey. I’m sure it was a furtive plea on her part for me to use less financial jargon in my articles for ETR. She didn’t have to. I hate this lingo. And it bothers me no end to hear that at least half of the 1,200 folks polled by AARP don’t read financial literature because it is too difficult. A majority said they find it easier to read computer instructions than a mutual fund prospectus.

I’m not surprised. And I’d like to do something about it. So I invite you to e-mail me with any question you might have about a financial term you don’t understand. I’ll explain it in ETR, in plain Baltimore language, as best I can.

Let me get the ball rolling with this basic term: Total return. It includes the return you get from the share price of a stock going up or down plus the money you get from any dividends offered. Example: "Since 1972, non-dividend-paying stocks gained an anemic annual return of 2.5 percent on average. But dividend-paying stocks generated total annual returns of 10.9 percent."

So, tell me… what financial lingo is bugging you?

[Ed. Note: Breaking down incomprehensible financial lingo is only one way Andrew Gordon - ETR's Investment Director (who makes his home in Baltimore, MD) - can help improve your investing IQ. With his INCOME financial advisory service, he'll show you the best - and safest - stocks to invest in and profit from. Learn more here.

And be sure to send your financial questions to Andrew at AskETR@ETRFeedback.com. Include your full name and hometown, and he may respond to your question in Early to Rise.]

What’s wrong with depending on the collective wisdom of the analysts who follow stocks day in and day out? If the majority of analysts say buy, shouldn’t you buy? And when most say sell, shouldn’t you sell (if you already hold the stock)… or at least not buy? If anybody knows whether a stock is good or not, they should, right?

All this makes so much sense. And it would be so easy to do. Which is why I hate to throw the idea to the dogs. But that’s what it fully deserves. And I’ll tell you why.

Analysts are incredibly biased. When they see a cup half-empty, they’re known to shout "buy." Okay, that’s forgivable. But not when they see a cup two-thirds empty. The frightful fact is this. About 40 percent of stocks go down in any given year. And the percentage of stocks that have "sells"? Only five percent. As recently as the 90s, it was two percent.

That means a lot of stocks go down with either a "hold" or "buy" rating.

There’s a way for you to get around all the smoke and mirrors. Look at the trend, not at the tally. Are analysts liking a company more or less? If it’s more, the company is worth a second look. Because as analysts improve their ratings from sell to hold or from hold to buy, they bring more buyers into the fold. And as investors do more buying, the share price goes up. As an investor, that’s what you want to see.

The Reuters financial site shows how analysts have changed their opinion on specific stocks during the past year. You can find this information under "recommendations."

[Ed. Note: Yes, ETR's Investment Director, Andrew Gordon, gives you advice about what to invest in and what to avoid. But he also shows you how to make investment decisions for yourself. Check out Andy's monthly financial advisory service, which uncovers income-generating stocks that promise safety (first and foremost), along with much-higher-than-average profit potential.]

Investing right now – when the economy is so shaky – may sound mighty risky. In fact, your main concern is probably not how much money you can make … but how well you can keep your existing money safe. There’s nothing wrong with that. It’s in unpredictable times like these that an old Wall Street adage applies: It’s not the return ON your investment but the return OF your investment that should be foremost in your mind.

If your primary concern is to protect your money, there’s really only one place to go. U.S. government bonds. They may be boring. They may give underwhelming returns. But they’re safe. And they have the full backing of the U.S. government. And that still means something.

The biggest challenge in buying bonds?  Locking in an attractive interest rate. When you buy a government bond, you’re loaning the government money. The longer the government keeps your money, the higher the interest rate it needs to offer you.

If you were negotiating for that interest rate, you’d say something like, "If you want my money for two years, you’ll need to pay me 1.8 percent. But if you want it for 10 years, you’ll have to pay me 3.5 percent."

That is what actually happens, except the government gets the message not from words but from the actions of millions of people buying and selling government bonds every day.

The risk you’re taking with government bonds isn’t that they’ll go bad. It’s that inflation will eat away at your earnings. If you’re making 3.5 percent interest on a bond investment but inflation is going up at the rate of 4 percent, for all practical purposes you’re losing money.

That’s not a good way to save, is it?

Consumer prices are climbing at a 4.1 percent clip right now. And investors who believe that number badly underestimates the true rate of inflation (as I do), should be starting to do more selling than buying of bonds. (Don’t worry. If you’re interested in buying rather than selling, I’ll show you how in a moment.)

This is the self-regulating mechanism of the market. As investors sell, the price of bonds goes down – just as selling pressure pushes the price of stocks down.

And as bond prices go down, their yields go up. As yields rise and become more attractive, buyers are once again drawn into the bond market.

"Bond interest rates" (not the original yield but the "yield to maturity") are constantly moving up and down in response to this buying and selling. When you buy a bond, it’s hard to be sure whether the interest rate you’re getting will be better or worse than it will be next year or the year after.  But your interest rate on that bond (the original yield) is locked in as soon as you make the purchase.

However, the price of your bond will fluctuate – as rates move up and down. So you should not put all your eggs in one basket.

Diversifying your bond portfolio is just as important as diversifying your stock portfolio. In addition to diversifying by sector, you also diversify by time.

There are two good ways to do this. You could ladder your bonds. Or you could barbell them. Let’s look at laddering first.

Building a Bond Ladder

Building a bond ladder is easy. The objective is to be in a position to reinvest your bond returns every one or two years.

Let’s say you have $50,000. Through your broker, you could buy a series of five 10-year bonds. The first series matures in 2009. You buy $10,000 worth. The second series matures in 2011. You put down another $10,000. The third matures in 2013, the fourth in 2015, and the fifth in 2017. (This is a  two-year ladder but you can do a one-year  ladder and have  money coming due each year for reinvestment or emergency.)  

And what do you do with the money you get when you redeem the bond maturing in 2009? You invest it in a bond maturing in 2019. And so on.

That means when interest rates are going up, you’re in a position to buy. When they’re going down, you’re also buying. For some people, that sounds very safe. For others, it may sound a little crazy.

Why invest in bonds maturing in 2019 if you’re getting a less attractive rate than, say, for 2017? Why not wait? But rates for bonds maturing in 2020, or 2022, or 2025 could continue to head down. You may be waiting a long time for nothing.

And if they reverse and head up? Well, you’ll be in a position to capture those higher rates as you move up the ladder (in years). In 2011, you could reinvest the money from your maturing bonds into bonds that are maturing in 2021. And so on.

Laddering is a very safe way to spread the interest rate risk you get with bonds. And you can do it with decent success with U.S. bonds. But I’d rather have you laddering with bonds issued by certain foreign governments – like Australia. Like U.S. government bonds, they’re government-backed with virtually no chance of defaulting. But many carry a much higher interest rate than U.S. government bonds. Australia’s is about 50 percent higher (300 basis points or three percentage points higher).

The only risk you’re taking is with the foreign exchange rate. You want the other country’s currency to be getting stronger against the U.S. dollar.

Why? Let’s assume you’ve bought $1,000 worth of Australian bonds. Your 6 percent interest should come to $600, right? But it’ll amount to less than that if the dollar gets stronger against the Australian dollar.

You see, your payment has to be converted from Australian to American dollars. If the Australian dollar weakens against the American dollar, it will buy fewer dollars. Say the Australian dollar goes down 10 percent against the U.S. dollar. Your $600 will also drop by 10 percent (or $60) to $540. But that’s still better than the $390 you’d get from a 10-year U.S. government bond. And 10 percent is a huge drop for a currency to take. Usually, the drops are a quarter of a percent or a third of a percent at a time.

That’s why I like foreign government bonds so much. You do better with them even under the worst currency-exchange scenarios. And if a currency is steadily moving against you, you have loads of time to call your broker and ask him to sell the bond.

Barbelling Your Bonds

A simpler way to play interest rate risk is by barbelling. With that same $50,000, instead of splitting it five ways, you’re splitting it in half.

Let’s say you think the yields on 10-year bonds will be going up. (Of course, you can’t be sure.) You invest $25,000 in the 10-year. The other $25,000, you invest in short-term bonds (maturing in, say, 18-36 months). You get stable income on one end and flexibility with the ability to reinvest in higher rates on the other end.

At the end of the 18-36 months, you can revisit the 10-year bonds. If the yields are more to your liking, you invest. If not, you have the option of reinvesting the $25,000 again in short-term bonds, and waiting another year or two to see where the 10-year rates are.

Right now, a lot of people think U.S. 10-year government bond yields will be going up, because these bonds are sensitive to the rate of inflation. And inflation is becoming a more serious threat. But if you have money you’d like to invest in bonds right now and you can’t wait, then barbelling may be a sensible strategy for you.

With risk spreading into unexpected places – like municipal bonds, bond auctions, and even the money market – government bonds are one of the truly safe havens left for investors.

And remember, you can employ these two techniques – laddering and barbelling – just as effectively with overseas bonds as U.S. bonds.

[Ed. Note: ETR's Investment Director, Andrew Gordon, is the editor of INCOME, a monthly financial advisory service that uncovers income-generating stocks that promise safety (first and foremost), along with much-higher-than-average profit potential.]

What trumps a stalled economy? Demographics. And what are the two biggest demographic trends today?

1. Globally, it’s the rapid growth of a middle class in countries like India, China, and Brazil. They want what we already have: a nice car and house, modern appliances, and good education and health care for their children.

2. Domestically, it’s back to the future. Boomers still rule. And they’re getting old. Hospitals, long-term-care facilities, vaccines, and meds of all kinds will see greater demand.

What these two trends have in common is health care. Globally and domestically, it’s set to grow – even if the economy isn’t.

[Ed. Note: ETR's Investment Director, Andrew Gordon, is the editor of INCOME, a monthly financial advisory service that uncovers income-generating stocks that promise safety (first and foremost), along with much-higher-than-average profit potential.]

Many investors swear by the "efficient market theory." All it means is that through the magic of millions of investors buying and selling stock every day, you get what you pay for. If a company is cheap, it’s cheap for a reason. If it’s expensive, it’s expensive for a reason.

I’m a dissenting member of the "efficient market theory" club. First of all, the market runs as much on emotion as it does on logic. And extremes rule. Investors are either too pessimistic or too optimistic.

Instead of the "efficient market theory," I’d call it the "inefficient market theory."

The fact is, you hardly ever get what you pay for when you invest. You usually get too little or too much. These days, when it comes to expensive stocks, you get much too little.

There are 153 companies with a price-to-earnings (P/E) ratio of over 100 (according to a search I did on my Yahoo stock screener). If you’re not familiar with P/E ratios, a share price greater than 100 times annual earnings or profits (per share) is very high. To justify such a high price, the company has to grow like the dickens and give every indication of continuing to do so.

I didn’t go through all 153 of those companies. But going through about half of them, I found that just a few earned their high P/E ratios because of strong growth. Usually, it was because their earnings fell faster than their price.

A good example: eBay (EBAY). Its earnings dropped 65 percent over the past 12 months. But its price dropped only 8 percent. At a P/E ratio of 98, its price is now much higher compared to its earnings than it was a year ago. The point is, eBay got more expensive by having a bad year, not a good year.

There are rare exceptions to this pattern, and one comes from overseas. Baidu is China’s Google. Its P/E ratio is 127. But it also grew its earnings over the past year by 95 percent. Phoenix-based First Solar’s (FSLR) P/E ratio is 110. But its earnings grew over 1,000 percent last year.

At one time, you could have argued that Google’s ultra-fast growth in revenue and earnings warranted its high P/E ratio. (It was over 100 for a long time but is now at 40.) But very few of the current crop of super-expensive companies can make such a claim. You should avoid them like the plague… unless you know from looking at past earnings that you have a Baidu or a First Solar on your hands.

[Ed. Note: ETR's Investment Director, Andrew Gordon, is the editor of INCOME, a monthly financial advisory service that uncovers income-generating stocks that promise safety (first and foremost), along with much-higher-than-average profit potential.]

Guess what? What with the recession… the subprime crisis… foreclosures… inflation… and more, your portfolio is very likely flying into uncharted weather. And you need to make sure it does well no matter how cold or hot the wind blows. So here are five things you can do to weatherproof your portfolio.

1. Invest in companies that do fine in the good times and don’t fall apart when the economy does. You don’t have to look any further than Warren Buffett to see how it’s done.

His Berkshire Hathaway bought a utility in 2006. It bought American Express 30 years ago. It also bought a beer company and owns GEICO (insurance) and General Re (re-insurance). These types of companies provide a substantial measure of protection against a slowing economy.

2. Invest in dividend-paying companies. They don’t have to be slow-growth companies, though many of them are. Look for those that give great dividends and move up in stock price. These companies are some of the most resilient stocks around when the economy and/or the market begins to slip.

3. Invest in sectors that have peaked in the U.S. but are finding new life overseas. Tobacco is just one example where you can find surprising growth and low risk by looking beyond the U.S.

4. Keep a few of your high-upside investments (but for no more than 4 percent of your portfolio and with a 25 percent stop-loss point), even if some of them could falter in a sliding economy. Go ahead and invest in a hot retail chain, mining junior, or upcoming energy company that looks real promising.

5. Invest 10-15 percent of your portfolio in gold or silver, because this part of your portfolio really gets going when things go south.

There are no guarantees in investing. There are only possibilities. But your portfolio should be able to do well no matter what comes to pass. It only takes a little thinking ahead.

[Ed. Note: ETR's Investment Director, Andrew Gordon, is the editor of INCOME, a monthly financial advisory service that uncovers income-generating stocks that promise safety (first and foremost), along with much-higher-than-average profit potential.]

Sad but true: Spend-happy consumers who can no longer use their houses as an ATM machine are simply finding other ATM machines.

From raiding the equity in their houses, they’re now raiding their retirement plans. At the end of 2006, only 11 percent of workers had outstanding loans from their retirement plans. At the end of 2007, 18 percent had such loans. As we’re approaching Memorial Day weekend, I’m betting it’s well over 20 percent.

Why steal from the "future you"?

Banks aren’t lending money. So people are forced to go to the only lender who’s willing to give them a break – themselves.

The problem with this trend is that the "future you" will probably need the money just as badly as (if not more than) the "present you" – considering the "future you" will be retired and out of a job and trying to live on reduced Social Security benefits.

I beg you to try hard to stay away from your retirement fund. For every $100 you’d be getting from it now, you’re taking $150-$200 or more away from yourself 10 years down the road. You need to give your retirement funds as much time as possible to grow.

Now, more than ever, listen to ETR’s advice to generate additional streams of income.

[Ed. Note: ETR's Investment Director, Andrew Gordon, is the editor of INCOME, a monthly financial advisory service that uncovers income-generating stocks that promise safety (first and foremost), along with much-higher-than-average profit potential.]

This is what the government bond chart on the Bloomberg site showed me recently:

• 2 years: 2.13 percent return
• 5 years: 3.13 percent return
• 10 years: 3.50 percent return
• 30 years: 4.38 percent return. 

If you want to invest in bonds (these are U.S. bonds but you can do the same exercise with bonds from other countries), which ones do you choose? Here’s how to break this chart down in order to select the best deal. 

1. Calculate the difference in the various interest rates in basis points. One basis point equals 1/100th of 1 percent or 0.01 percent.

• The 5-year bond’s interest rate is 100 basis points better than the 2-year.
• The 10-year bond’s interest rate is 37 points better than the 5-year. 
• The 30-year bond’s interest rate is 88 points better than the 10-year. 

2. Measure the points per year. (Divide the points by the number of years your money will be tied up.)

• In comparing the 2-year to 5-year bonds, you get 33 more basis points of interest for each of the three extra years your money is tied up. 
• In comparing the 10-year to 5-year bonds, you get 7.4 more basis points for each of the five extra years your money is tied up. 
• In comparing the 30-year to 10-year bonds, you get 4.4 more basis points for each of the extra 20 years your money is tied up.

The 5-year bond looks like your best deal – but it’s not. When you compare the 2-year to a zero-year bond at zero interest (in other words, no bond at all), you get 107 more basis points for each of the two extra years your money is tied up. Based on how much more interest you get paid for the number of years you tie up your money, that makes the 2-year bond your best deal.

The 30-year bond is your worst deal.

There are subjective factors you will also want to consider, like how soon you will need that money. But for a simple quantitative analysis… you just learned how to do it.

[Ed. Note: ETR's Investment Director, Andrew Gordon, is the editor of INCOME, a monthly financial advisory service that uncovers income-generating stocks that promise safety (first and foremost), along with much-higher-than-average profit potential.]

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The two surefire ways to make money off boomers is now down to one. But that one way looks stronger than ever – and if you haven’t invested accordingly, you should do it now.

Boomers had been a sure bet to spend their retirement years visiting either far-off places or nearby hospitals. Travel and health care companies were drooling over the thought.

But for travel agencies, hotels, and resorts, a thought is all it’ll ever be.

Boomers are feeling the pinch along with the rest of the population. Consumer loan defaults are approaching levels not seen since the 1991 recession. And mortgage defaults are surging. Hopes of retiring with a nice little nest egg are fading along with the economy. That leaves health care…

The number of people being admitted to hospitals is expected to skyrocket from 8.2 million in 2004 to 22.9 million by 2030. Boomers begin reaching the ripe old age of 65 in 2011. And hospitals of all stripes – general, community, specialty, acute-care, ambulatory surgery, etc. – can’t gear up fast enough.

How to invest? There are 12 real estate investment trusts (REITs) that specialize in developing and/or owning medical properties. They’re much less risky than picking a pharma you think might have the next blockbuster pill.

Look for REITs with the lowest price-to-earnings (P/E) ratios. To find more information on these companies, go to the U.S. REIT website (nareit.com) and type "health care REIT" in the search window. Plenty of useful links will pop up for your browsing pleasure.

[Ed. Note: ETR's Investment Director, Andrew Gordon, is the editor of INCOME, a monthly financial advisory service that uncovers income-generating stocks that promise safety (first and foremost), along with much-higher-than-average profit potential.]

Picture the CEO as the driver and the company as his car. By looking at what new passengers he takes on and in which direction he’s turning the steering wheel, you can see where he’s heading in the next 20 minutes.

But predicting where he’ll be going a hundred miles down the road gets fuzzier, doesn’t it?

For that, you need not only observation and intelligence but imagination.

What changes our world in unpredictable ways isn’t war or ideas. It’s technology.

This is where the serious money can be made. For example, if you could have anticipated that oil would increase more than five times since its $20 per barrel price in the 1980s, you could have made a lot of money.

Andrew Hall, who works for Citigroup, made just such a bet based on the simple premise that growth in demand was starting to outstrip growth in supply. He’s made a quarter of a billion dollars from that insight.

Now we’re stuck at the other end of the spectrum. Most people can’t imagine oil being cheap again. But technology made oil plentiful once. Who says it can’t do it again? Technology also invented the main users of oil, like cars. Who says technology can’t invent cars that run on something besides gas?

It’s already happening. Electric cars ply the roads. Soon air-powered cars will be tooling around our cities. Technology is on its way to upending the demand side of oil. And behind the scenes, it’s making inroads on increasing the supply side.

Oil won’t stay this expensive for more than another 2-4 years. The question is, do you have the stones and imagination to short oil? If you do, you should make an investment in the Ultrashort Oil and Gas (DUG) ETF. It moves in the opposite direction of the Dow Jones Oil & Gas Index. When oil starts to go down, this ETF will be shooting up.

You have time. Oil is still making new highs and supply is still very tight. Wait for the price to head down. Then simply be willing to believe in and act on what you’re seeing.

[Ed. Note: ETR's Investment Director, Andrew Gordon, is the editor of INCOME, a monthly financial advisory service that uncovers income-generating stocks that promise safety (first and foremost), along with much-higher-than-average profit potential.]