Forget New Rules of Investing, Go Old School

When I was first starting out in the markets, an old-timer explained to me the “Rule of 100,” a rudimentary tool for asset allocation that, somewhere between Netscape’s 1995 IPO and Bear Stearns’ collapse, got lost in the shuffle.

Back in the “old days”—as in, 2002—stock investors used to opt for foreign bond funds as a means to play a weakening dollar. The correlation was often imperfect, since foreign corporate bonds were influenced not only by the currency gyrations, but the credit quality of the issuer. You’d want to bet on the Indian rupee, but end up being stuck with the credit risk of ICICI Bank (IBN).

Since then, as we’ve covered in great detail over the years, the selection of ETFs and other exchange-traded products tracking foreign currency has exploded. CurrencyShares.com, iPath ETN, MarketVectors, ProShares, Elements ETN and WisdomTree all offer funds and notes which give investors direct exposure to the value of foreign currency relative to the U.S. dollar. When the dollar falls, these funds rise. Most throw off a monthly or quarterly income stream as well.

A brand-new fund from WisdomTree ups the game by providing a broad exposure to a basket of currencies from many of the world’s most promising —and volatile—economies.

The WisdomTree Dreyfus Emerging Currency Fund (CEW) provides an equal-weighted exposure to 11 different emerging market currencies, including the Mexican peso, Brazilian real, Chinese yuan, Indian rupee, Chilean peso, Israeli shekel, Polish zloty, South Korean won, Taiwanese dollar, Turkish lira and South African rand. The initial yield has not yet been set, but is likely to price around 4.6%.

Global One-Month Deposit Rates (as of 3/31/09)

Source: WisdomTree, Bloomberg

The risk here for U.S. investors is primarily currency. If the dollar climbs sharply against emerging market currencies, as it did last fall in the midst of the credit crisis, this fund will most certainly drop. There’s also an interest rate risk: While the fund’s holdings have an average maturity of 90 days or fewer, a sharp rise in short-term interest rates will also negatively affect shares. The full prospectus can be found here.

Up until the credit crisis hit, it became very popular -- and profitable -- for older investors to assemble portfolios of various income-producing products such as energy trusts, REITs, foreign bonds and bank-loan funds. As more individuals seek to maximize their retirement income beyond the meager interest paid on money markets and government bonds, that’s likely where this new offering will ultimately fit.

We called it months ago. After all the talk about fiscal responsibility, strict oversight and taxpayer protection, it has been announced that Chrysler will not pay back more than $7 billion in federal “loans” extended during the Bush and Obama administrations.

Turns out those weren’t loans, as they were originally described, but simply gifts, all paid for by the taxpayers who wanted nothing to do with Chrysler in the first place.

That unforgivable loss is trumped only by the truly unbelievable reality that still more tax dollars will be going to Chrysler, including a $4.7 billion loan to the company as it exits bankruptcy. The company's financial advisor has also suggested it will need—wait for it—an additional $1.5 billion loan from the government by June 2010.

As much as lawmakers like to berate CEOs for making poor decisions, the government’s willingness to give away, literally, billions of taxpayer dollars to favored constituencies is simply unconscionable and marks a yet another new low in the nightmare of socialist creep that began more than 14 months ago.