Roger Ramghedt, VP of product development at R-Squared Advisors, said the new offerings are based on the “widely believed concept that the only thing that goes up in times of financial crisis is correlation.  The R-Squared Correlation Series should provide institutions and individual investors alike with the ability to capture that belief with exchange-traded notes.”

Portfolio diversification is based on the premise that various asset classes tend to move independently of each other.  In times of financial crisis, such as the events of the past two years, most asset classes behave in a similar fashion, thus losing their diversification characteristics just when they are most needed.  This problem can be solved by allocating a portion of the portfolio to products that increase in value as correlation values rise.

The new funds are designed to track one-year correlation levels between the major asset classes of US stocks, foreign stocks, bonds, and commodities.  Today’s launch includes: 

R-Squared Daily S&P/EAFE Correlation 2x ETN (RSSE) seeks to track 200% of the daily performance, before fees and expenses, of the one-year correlation (r-squared) between the S&P 500 Total Return Index and the MSCI EAFE Developed Markets Index, priced in US dollars.  From the mid-1990s to the mid-2000s, the one-year correlation between US and foreign stocks ranged from a low of about 0.1 to a high of around 0.55.  However, during the 2009 financial crisis it climbed as high as 0.90.

R-Squared Daily S&P/DJ-UBS Commodities Correlation 2x ETN (RSSC) seeks to track 200% of the daily performance of the one-year correlation (r-squared) between the S&P 500 Total Return Index and the DJ-UBS Commodities Total Return Index.  The correlation between stocks and commodities has historically been extremely low (0.00 – 0.05).  However, it is currently near an all-time high of 0.39.

R-Squared Daily S&P/Barclays Aggregate Bond Correlation 2x ETN (RSSB) seeks to track 200% of the daily performance of the one-year correlation (r-squared) between the S&P 500 Total Return Index and the Barclays Capital US Aggregate Bond Index.  Over the past 20 years, the one-year correlation between US stocks and bonds has averaged 0.10 and ranged from a low of 0.0 to a high of around 0.35.  In 2008, the correlation between this pair reached a peak of 0.27 but did not reach the highs seen in 1994, 1996, and 2003. 

Since these new products are ETNs instead of ETFs, their launch was not prevented by the recent SEC decision to halt exemptive relief requests, which applies only to ETFs and open-end mutual funds.  Additionally, these new ETNs do not employ futures, so CFTC involvement was avoided.  The notes are unsecured senior debt obligations maturing in 2035 and will not pay any dividends.  Each of the three new ETNs will have annual expenses capped at 0.65%.

The underlying correlation indexes used by these products are shifted by +0.1 and multiplied by 100.  Therefore, the indexes have a range of 10 to 110, instead of 0.0 to 1.0 for traditional r-squared measurements.  The purpose of this is two-fold: 1) to avoid a total wipeout of the fund when correlations go to zero and 2) to mitigate the effects of the daily 200% leverage.

As always, investors are advised to fully understand these products and the effects of daily-reset leverage before purchasing.

Disclosure covering writer, editor, and publisher: No positions in any of the securities mentioned because they don’t really exist.  No positions in any of the companies or ETF sponsors mentioned because they don’t exist either.  No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

Yes, Blankfein really said this. Follow the link above if you don’t believe it. Even more amazing, he said it to a reporter, during a scheduled interview, knowing whatever he said was on the record.

Now I will admit that in context, Blankfein had a point. The financial system provides funding for new businesses and jobs for people. Most would agree these are good things. Blankfein, however, is not a theologian. He is the head of Goldman Sachs, a firm that at the present time is widely regarded as greedy, evil, excessively powerful, and so forth. Claiming heavenly justification for Goldman’s activities at a time like this is not smart.

No one gets to Blankfein’s position by saying dumb things to reporters. This makes me think he knew exactly what he was saying and simply didn’t care what people would think. It makes perfect sense if he believes what he said to be true.

This being the case, the problem lies not in Goldman Sachs but in those of us who refuse to acknowledge its inherent goodness and worthiness. I suggest we all make amends by holding hands and offering the Lloyd’s Prayer.

Our chairman who art at Goldman
Blankfein be thy name
Thy rally’s come, God’s work be done
In the Dow as it is in the Nasdaq
Give us this day our daily gain
And forgive us our frontrunning, as we punish those who frontrun against us
And bring us not under indictment
But deliver us from regulators
For thine is the cashflow, and the power, and the bonuses, forever and ever. Amen

[Note: several versions of this prayer are floating around the web. The one above is my favorite and it comes from Mish Shedlock.]

About a week ago, the official August unemployment report was released. According to the Bureau of Labor and Statistics (which many suggest underreports the bad news), total unemployed including “marginally attached workers, plus total employed part time for economic reasons” has climbed to 16.8% – up 54% compared to last August. That means 1 in 6 Americans are either jobless or delivering pizzas to keep their refrigerators stocked.

Most of us feel the pain. That’s probably why consumers aren’t buying as many Starbucks Caramel Macchiatos or Whole Foods organic quail burgers.  The spending contraction is real and sustainable.  Our buying habits have been changed by our shrinking paychecks – both at home and in business. This will not abate anytime soon.

In addition to consumer problems, five more regional banks were closed on Friday (9/4/09), bringing the 2009 total to 89 and climbing.  I don’t expect the JP Morgans or Wells Fargos of the industry to fail, but bad loans are still hurting smaller institutions. Time will tell how many other banks  succumb to default risks.

These and other reasons are why one of those aforementioned five economists is reading negativity in his economic horoscope. NYU Stern Business School’s Nouirel Roubini said…

“I believe that the basic scenario is going to be one of a U-shaped economic recovery where growth is going to remain below trend … especially for the advanced economies, for at least 2 or 3 years…Within that U scenario I also see a small probability, but a rising probability, that if we don’t get the exit strategy right we could end up with a relapse in growth … a double-dip recession”

But what about the market? Isn’t it pointing up to a recovery with its generous uptrend?  I agree – it’s hard to argue with a chart. Since the early-summer doldrums, popular wisdom of “sell in May and go away” has proven bad advice.  But need I remind you, dear student of the market, we just started September. Our dreaded October is a mere 3 weeks away. There are many days left in 2009.  Determining what happens between now and then is a matter of conjecture, math, and tarot cards.

You heard me right, and call it what you want – juiced fixed income, bonds on crack, nitroglycerin-based treasuries – but traders can now access leveraged 10- and 30-year U.S. Treasury benchmarks both long and short, combined with 3x the upside or downside.

Even if your name is Yorgi and you lead a group called “Anarchy 99,”  you’ll still be all over these new ETFs.  That is, if you’re an equity guy trying to game fixed income!

Here’s the scoop.  Direxion added four ETFs today – two are bull funds and two are bearish:

The bullish funds are:

• Direxion Daily 10-Year Treasury Bull 3x Shares (TYD)
• Direxion Daily 30-Year Treasury Bull 3x Shares (TMF)

The bear funds are:

• Direxion Daily 10-Year Treasury Bear 3x Shares (TYO)
• Direxion Daily 30-Year Treasury Bear 3x Shares (TMV)

We’ve certainly enjoyed reviewing the incredible success of all of the new Direxion ETFs.  For example: FAS trades over 200mm shares a day.  How cool is that?

Direxion mentions another new wrinkle in today’s press release.  They are changing the name of all funds to include the word “Daily” in the title.  They are going to great lengths to make sure folks understand how these funds are designed for day traders and not meant as long-term investments!  We applaud them for that, as we chuckle time and time again when we read other pundits slamming leveraged ETF product for not performing well.  Rather than point fingers or assign blame, they should find time to read the prospectus and maybe do a little homework.

I’ll close with a special quote from Agent XXX – as those who do trade the leveraged ETFs are playing with nitroglycerin…..

Xander Cage: [to Yorgi] Yeah; cars, boards, bikes. I like anything fast enough to do something stupid in.

Good Luck!

The Dow is down 200 points – do you know where your fund manager is? With the OnGuard Manager Twitter Tracking ETF you will never have to worry again. Looking over the shoulder of your fund manager with a webcam is so 1999. Now, you can monitor every action your manager makes with a constant barrage of tweets. Plus, we have linked the Twitter account to a GPS transmitter permanently secured to the ankle of your ETF manager – now you will know instantly when he steps away from his Bloomberg terminal.

The JailHouseShares Madoff Percent-a-Month ETF began accepting deposits today. Historically, the inability to meet redemptions ultimately leads to the downfall of most Ponzi schemes. However, with decades of experience under his belt at running this type of fund, Bernie says he has all the redemption problems licked in this new offering. The new ETF will allow in-kind exchanges only for new shares; In-kind redemptions are not allowed. “I guarantee that the NAV will be adjusted upward by 1% each and every month. After a few years, the compounding effect will make your account balance look wonderful and should provide you with extensive bragging rights. It might even be accepted as collateral for a new sub-prime loan.”

Plans for the BankerShares Timmy G. Money Center Bank ETF were unveiled today, and the Dow plunged on the news. The prospectus contained manager comments such as “I love banks! I mean, I really love banks. Do you really think I’m on the side of the investor? Heck, I used to run the Federal Reserve Bank of New York! My buddies are in trouble – I’m going to bail ‘em out, no matter what! That’s what friends do, dabgummit. And besides, I love banks.”

Remember 1996, when Chairman Greenspan warned of “irrational exuberance“? Now you can relive those times every day with an investment in the HistoricalShares Alan Greenspan Target Date 1996 ETF. “Why invest in some unknown future date?” quipped the fund’s namesake. “What people really long for is the ‘good old days’ when I ran the world. Many pundits today like to blame me for the world’s problems. Think again, I told you about irrational exuberance years ago, but most of you didn’t listen. With my new ETF, it is now possible to turn back the clock.”

The FutureShares Z&E Target Date 2525 ETF – This new ETF is managed by the team of Zager & Evans, who state that “In the Year 2525, if man is still alive, if woman can survive, they may need a good investment plan.” Their original idea was to load up the portfolio with 500-year zero-coupon bonds, until they realized that the bond issuer may not survive. It will be an actively managed ETF.

Fiat Group Automobiles SpA of Italy today announced their intention to enter the ETF business with a currency fund – The Fiat Currency ETF. “It just made sense” said a company spokesman, “the whole world was talking about our currency, but since we didn’t have one, all that free advertising was going to waste. Now when people want a fiat currency, they can get the real thing.” Note: the company had “no comment” when questioned about the possibility of a Chrysler Currency ETF.

The FrontierShares MSCI Antarctica Index ETF was launched today, but with no bids being presented, the market appears to be frozen. Our contact at the Antarctica Business News reports that a spokesman for the new ETF says “success in the ETF business is all about first-to-market and therefore we are locking up that status for ourselves on the last continent on earth. We also want to introduce the Moon ETF and the Mars Fund, but we are having trouble getting those through registration.”

As expected, the US Government issued a new exchange traded note today – The US Government T LARP ETN. Since this is an ETN and not an ETF, it will not actually invest in assets identified by the Troubled Toxic Legacy Assets Relief Program. Instead, it will be just another debt instrument issued by the government that will track who-knows-what.

The ZombieShares Pre-Liquidated Deathwatch ETF – “We knew this offering was going to stink and eventually end up on deathwatch,” reveals the fund’s sponsor, “so we decided to take a cue from the Pre-Refunded Muni guys and offer this new ETF as being pre-liquidated to avoid the hassle down the road.”

The CheapShares Blue Chip Penny Stock ETF began trading today. Its mandate is limited to stocks that once carried the “blue chip” label, while trading for pennies during the current bear market. “I expect to have no shortage of formerly invincible stocks like Citigroup (C) to choose from before this mess is over” the manager was heard saying.

The highly anticipated GreedyShares AIG Bonus ETN got underway today, based on a new index created to track the performance of AIG bonus payments. As with almost everything from AIG, deposits into this fund will not be used as collateral for the debt obligations associated with this exchange-traded note. Instead, AIG will issue credit default swaps to avoid the Lehman bankruptcy stigma associated with other ETNs. Congress has already ruled that any gains, distributions, or redemptions from this ETN will be taxed at 90%.

It had to happen eventually – there have been so many black swan sightings lately that probability specialists are starting to doubt the existence of white swans. Nassim Taleb has never shied away from placing a bet on a low probability outcome, as long as being wrong didn’t kill him. Therefore, he took this bet with the launch of the SwanLake White Swan Discovery ETF. Mr. Taleb reportedly bought a few call options this morning before embarking on an expedition to the Galapagos Islands, where his quest for the endangered White Swan will begin.

With today’s launch of the BenShares Banana Republic ETF you can invest in 2009’s Banana Republic Hall of Fame inductee – the good ol’ United States of America! This portfolio will contain bills, notes, and bonds issued and backed by the full faith and credit of the United States Treasury. And you never have to worry about this fund running out of money because they can always print more. This portfolio is suitable only for those with the most aggressive risk profile, as there is no guarantee of the return of your principal.

The ConfusedTracks Inverse Short Contrarian Obtuse ETF seeks to profit from taking a contrarian view of an obtuse investment forecast while taking the inverse of the corollary short positions that are in contradiction with the underlying theme. If this approach doesn’t lose money for you, don’t worry. The fee structure will be so high that it is guaranteed to lose value. We believe this product will see high demand from naked short sellers.

The SteroidShares 3x Bull Money Market ETF seeks to match the daily investment results, before fees and expenses, of 300% of the price performance of the Average Money Market Fund Index. There is no guarantee the fund will meet its stated investment objective. With this introduction, we finally get what investors have been craving in this volatile market – a money market fund on steroids. The 3x ETFs usually come in pairs, and this one is no exception with the corollary offering of the SteroidShares 3x Bear Money Market ETF.

The Nicolas Sarkozy Free Market ETF was to be highlighted at this week’s G-20 summit, but fund sponsors soon realized anything with the words “free markets” wouldn’t sell on the European Continent, let alone in a socialist country such as the United States.

The Barack Obama Bracketology ETF was scuttled at the request of his advisers, as his #1 Idea – The North Carolina Tar Heels, was sure to offend his cronies across the triangle in Durham and Winston-Salem.

Plans to offer the InsuredShares Credit Default Swap ETN were put on hold when the sponsor realized that the new “plain English” requirement for mutual fund prospectus language would also apply to ETNs.

The AmateurShares No Market Maker ETN was scheduled for launch today, but the offering was pulled at the last minute when the sponsors discovered that similar funds are already on the market.

Also in today’s news: Chuck Norris Named Economy Czar.

For a “blast from the past” be sure to check out our Starless Funds edition.

Disclosure: We have no positions in the mentioned securities. We believe that these funds are purely fictional, but sometimes it is hard to distinguish make-believe from reality. Any resemblance to any investment, person, or company is purely coincidental. If we somehow offended anyone or revealed the secret plans of an ETF sponsor, it was not done intentionally or with malice. Some of the information was obtained from reliable sources, but most of it was totally fabricated.

Mr. Norris will “whip the American economy back into shape,” said the president in remarks before boarding Marine One. “We all know that Chuck Norris fears no one. Indeed, it is only due to Chuck that the United States has avoided the international crisis Joe Biden said we would face early in my administration. Chuck warned off all our known enemies, and so far they have complied. Wall Street will be well-advised to do what he says.”

Barefoot and clad in a black kimono, Mr. Norris refused to identify his first target. “Let’s put it this way,” he said after smashing the podium to pieces. “The next rich weenie who asks for a bailout had better crawl to Washington on his hands and knees. I’ll be watching.”

Asked how he planned to handle relations with Congress, Mr. Norris said he had already been in contact with Rep. Barney Frank (D-MA) and Speaker Nancy Pelosi (D-CA). “They’re going to come to my gym and we’ll all have a nice chat while I work out. I’ve been looking for some new sparring partners anyway.”

Mr. Norris denied responsibility for an unscheduled early close at the New York Stock Exchange today following rumors that he wanted the names of all short-sellers. “These folks are betting against the American Dream. I just want to appeal to their patriotism. If that doesn’t work, I’ll see how much they enjoy dangling off the Brooklyn Bridge. I figure I can hold ten or twelve of them in each hand.”

The former star of “Walker, Texas Ranger” indicated he has no problem with banks that pay large bonuses even while receiving taxpayer money. “It will be a great opportunity to collect donations for charity. I’ve never had anyone refuse after I drive my truck into their bedroom.”

In other economic news today:

Federal Reserve chairman Ben Bernanke revealed the central bank has brought in Reiki Master Tojito Fujihana to assist with monetary policymaking. “Master Tojito’s job will be to direct the Universal Life Force toward our twin goals of controlling inflation and restoring economic growth,” Bernanke said at a candlelight press conference. “We believe that with proper attunement, the energy of the American People will activate a natural healing process. I was dubious at first, but nothing else is working so we decided to give this a try.” As he levitated inside the Fed’s ornate conference room, Mr. Fujihana demonstrated his technique on Fed Governor Richard Fisher. Mr. Fisher gently floated up from his chair and out through the chimney, and at last report was being kept under observation by Air National Guard F-16 jets somewhere over Virginia.

Police in Greenwich, Connecticut, hit the jackpot at the offices of AIG Financial Products. “All we do is wait outside the parking lot and then stop all the Jaguars and BMWs to ask for their Proof of Insurance. Not a single one of them ever knows what insurance is. The tickets we write are easy money for the city.” AIG employees seem nonplussed by the attention. “I thought they were just collecting tolls,” said Bill Weston, a credit default swap trader for AIGFP. “They don’t ask for much – just $150. Heck, I always hand them another $20 just to say thanks for the good service. We have a great police department here.”

In midtown Manhattan, a group of ex-Lehman Brothers bankers meet on Tuesday nights to support each other in their transition to life off Wall Street. With their severance packages almost gone, the bankers are struggling to learn important skills such as how to operate a microwave oven. “I’m used to just asking Juanita for warm water to take my evening colonic cleanse,” said J. Elbridge Bradley, who made up to $10 million a year at Lehman but is now unemployed. “She left a few days after I stopped paying her, and I’ve been trying to figure out how to work this kitchen ever since. So many buttons and knobs – who knew it was this complicated?” Bradley says the support group has been a big help. “Next week I’m hoping to learn how to give myself a hand massage. I really miss the way Roger used to make my knuckles crack.”

Overwhelmed with tired, poor huddled masses, the Statue of Liberty began removing the famous inscription from her base today. “I’ve been scraping it with the torch and the words are starting to come off,” Lady Liberty said as National Park Service Rangers stood by helplessly. “All these people are really annoying. I was put here to welcome immigrants, not unemployed Americans. They already have their freedom – what else do they want? It’s not like I have any spare change under this gown.”

New ETF introductions set a record today.

Financial archeologists uncover 12-year old mutual fund investment newsletter

This just in…(from Hopper’s Wacky World)…

For a downloadable copy, please click here.

10 Ways to Lose with Funds

1. Hold Your Losers. This is often referred to as the “I’ll just wait until it gets back to the price I bought it at before I sell” syndrome. If the fund is not working, sell it. There is no shame in taking a loss. In fact, it is one of the few things in life that your Uncle Sam will give you some credit on.
2. Buy Last Year’s Winner. This is sometimes referred to as Peter Piper’s Persistence of Perpetual Performance Premium Paid for Periodic Performance (9 P Plan). However, leading practitioners of this strategy are constantly rewriting the rules and overhauling their back-tested results.
3. Assume that bond funds are safe and conservative. Nineteen Hundred Ninety Four (1994), need we say more?
4. Try to pick tops and bottoms. Can you say “Japan?” Many experts called a “top” in the Japanese Nikkei at 25,000 in 1987, and again at 30,000 in 1988, and again at 35,000 in early 1989. They all missed the “real top” of almost 39,000 in late 1989. To make up for it, they called a “bottom” of 30,000 in 1990, a “revised bottom” of 25,000 in 1991, and the “absolute bottom” of 20,000 in 1993. When it broke below 15,000 in 1995 they gave up and sold everything. Maybe that was the “real bottom” since the experts missed it.
5. Make tax considerations your top priority. By investing in state tax free money market funds you can keep your entire 2.7% annual gain and not have to pay anything in taxes. Alternatively, if you invest aggressively and end up with a 25% short term gain, you may have to give the tax man 30% to 45% of your profit, depending on your tax bracket. This leaves you with an after-tax yield of only 14% – 18%.
6. Concentrate on fund expenses and advertising. When evaluating funds, many investors forget that the “N” in NAV stands for Net Asset Value. The annual return is the net return to the investor after all expenses. If a fund is returning 40% a year after expenses, you shouldn’t care if the expenses are at 1% or 5%.
7. Pay a high load. Many funds are now available with either front-end load ‘A’ shares, back-end load ‘B’ shares, or level-load ‘C’ shares. One advantage of paying a high (6.5%) front-end load is that less than 94% of your investment goes to work for you. That way your first 6.5% gain is tax-free (see #5 above).
8. Buy and hold (and ignore). Study the charts on page 4 of this newsletter. Unfortunately, those are not make believe funds. They are real funds with real declines. Buy & hold investors are hurting badly on these. Prepare your exit strategy before you invest.
9. Consistently change your investment strategy. A Buy & Hold strategy can work if properly executed. However, many investors who start off with this strategy abandon it after an extended market decline. At or near the bottom is the worst possible time to switch away from that strategy. There are numerous valid investment strategies. However, they all require discipline to be successful.
10. Buy funds based on their name. One needs to look no further than the next column for examples of some potential losers.

Mutual Fund News

Alan Greenspan is rumored to be starting a new Irrational Exuberance Fund. When asked to comment, Mr. Greenspan would only say that he was merely contemplating the effect that such a fund would have on the economy, were such a fund to exist. He went on to say that there was no evidence that there was such a fund.

Fidelity Investments, in conjunction with the American Stock Exchange, has announced the formation of 156 new indexes. The largest and most popular of the new indexes is expected to be the Magellan Index. Other indexes attracting much attention include the Contrafund Index, Value Index, Dividend Growth Index, and Select Electronics Index. In a related announcement, Fidelity stated that all of their funds will now be index funds and vowed never again to have a fund under perform its relevant index.

Magellan/Stansky Watch: The world’s largest mutual fund, Fidelity Magellan, and its manager Bob Stansky, have spawned a whole new industry of Magellan/Stansky watchers. In the past, activities of this mammoth fund were monitored through SEC filings which the fund is required to make in addition to the monthly reports published by Fidelity. However, this new industry cannot exist on this meager amount of data and has produced its own team of investigators, code named SWAT (Stansky Watching All the Time). A recent report from SWAT indicated that Bob Stansky drove to work in his wife’s car one day last week. One watcher, Magellan Insight, indicates that this could signal a radical shift in strategy for the helmsman of the massive Magellan fund and that shareholders should be prepared to see a change in automotive holdings of the fund.

The new Rock & Roll Bond Fund is expected to make its debut in a few months. The fund will invest in the new debt offerings from rock star David Bowie and the soon to be released debt offering from Crosby, Stills, & Nash. When asked why he wasn’t part of the new bond offering, rocker Neil Young said “those guys are always leaving me out of things. This time they gave me some lame excuse about me being a Canadian and how the SEC filing was for a domestic debt offering.” MTV has agreed to provide real-time quotes on the bottom of their screen for all Rock & Roll debt and equity offerings.

Bill Clinton has caught mutual fund fever. As President of the United States, he was required to put all of his investments into a blind trust so as to not create any appearance of a conflict of interest. Since he can’t invest in any funds on his own, he has decided to launch his own family of funds, stating that the law does not require the separation of State and Regulated Investment Companies. The first funds in the new White House Series Trust are slated to be the Lincoln Bedroom Fund, the Campaign Contribution Fund, and the White Water Real Estate Fund. The fund series has heavy front-end and back-end loads in addition to hefty operating expenses which are the result of the ongoing legal expenses.

Congress has also gotten into the mutual fund business with the new Bipartisan family of funds. Members could not agree on an investment style so a split-management arrangement has been made with the majority party controlling 51% of the portfolio. The Pork Barrel Fund will invest in infrastructure and other government funded projects in the home states of the lead fund managers. The Government Shutdown Hedge Fund will “go long” the national debt and hedge its position by shorting Social Security and Medicare reserves.

With the Administrative and Legislative branches (not to mention the Treasury and Federal Reserve) now in the fund business, all eyes have turned towards the Judicial branch. The Supreme Court is obviously late to the party. Many industry watchers are concerned about an abuse of power as the Court tries to play catch-up. Naming the fund, The Only Constitutionally Legal Mutual Fund, adds to the validity of the concerns.

Twentieth Century funds are now part of the American Century Funds group, but still maintain their headquarters in Kansas City, Missouri, “the Show Me” state. They have recently announced the first Missouri Tax-Free money market fund called the Show Me the Money Market Fund. Tom Cruise will play the part of fund manager and in a recent interview said “I will handle all the commercial paper and swap transactions, but we will bring in a stunt double if the transaction involves inverse floaters.”

We have all been made aware of the effect that the baby boomer bubble has had on the investment world as the demographics of this ever-aging group evolves. It has been written that it was the baby boomers that were responsible for the real estate run up in the seventies and now the stock market boom of the eighties and nineties. In order to capitalize on the next few decades of this aging phenomena, Capital Cities Asset Management has announced the new Aging of America Series of sector mutual funds. The first fund in the series is slated to be the Empty Nesters Fund and will be quickly followed by the Medical Miracles Fund. To ride the baby boomer bubble to its ultimate conclusion, the Grim Reaper Fund is also planned. Dr. Kevorkian has been retained as a consultant to provide “assistance” in case the natural investment process proves to be too slow and painful. The proposed After-Life Fund is still in search of a manager. One applicant, Ms. McClaine, has offered to “come back next time” as a fund manager if the position has not been filled by then.

Along similar lines, Stein Roe has added the Generation-X Fund, Mid-Life Crisis Fund, and the Old Geezer Fund to their line-up to build on the success of the Young Investor Fund.

With market volatility increasing, many fund companies are exploring ways to reduce the daily volatility of their funds. A spokesperson for the Hidden Volatility Fund stated that they recently did a 1000 for 1 split of their fund. Each shareholder received 1000 shares valued at $0.02 per share for each share they previously owned at $21.38 per share. The spokesperson went on to say that thanks to the lower NAV, not only are shares more affordable, but the volatility has been greatly reduced since the underlying portfolio now has to change in value by more than 25% before the NAV will change by a penny.

- The April Fool

Disclosure: Starless Funds is published once every so often by All Star Funds, Inc. Subscription rates are undetermined and are not refundable under any circumstances. Like many newsletters, this one does not offer any investment advice. It is for entertainment purposes only. If we somehow offended anyone or revealed the secret plans of a fund company, it was not done intentionally. All information was either obtained from reliable sources or was totally fabricated. In either case, its accuracy cannot be guaranteed. Our employees and affiliates may invest in these funds, but we are clueless as to why. For further information, comments, or a free sample of a more legitimate publication, please contact: All Star Funds, PO Box 203427, Austin TX 78720, (800) 299-4223, (512) 219-1183, fax:(512) 331-9833, e-mail: allstar@ccam.com

Be sure to check out Record Number of ETFs Launched Today and Chuck Norris Named Economy Czar.

Bill Gates recaptured the title of World’s Richest Man from Warren Buffett, which must be small comfort since the Gates fortune slipped in value from $58 billion to only $40 billion in the last year.  Buffett, meanwhile, was worth $37 billion, down from $62 billion.  Ouch!  In third place was Carlos Slim, whose Mexican phone monopoly is the reason it costs about $38,000 per second to phone home from Cancun.

Last year the world had 1,125 billionaires.  Now there are 793, a decrease of 332.  Notable drop-offs include:

• Anthony O’Reilly, the Irish tycoon who wishes you would all buy more of his Waterford crystal doodads.
• Facebook founder Marc Zuckerberg, who would love to add you to his Friends list.
• Maurice “Hank” Greenberg, who earned his now-vaporized billions at the helm of American International Group (AIG), which is now a federal agency.
• Wong Kong Kyu, a Hong-Kong based retailing mogul who really did disappear after Chinese authorities suspended trading is his company’s stock.  There are reports that he may be under house arrest in Beijing.

One person who is still on the list, and really wants you to know it, is Saudi Prince Alwaleed.  (He has a bunch of other names but Alwaleed is enough for our purposes here.)  Given that Citigroup (C) is one of the prince’s favorite stocks, the fact that he remains in the Billionaire Club is nothing short of a miracle.

Meanwhile, some folks have more important things to worry about than counting their money.  Where to live, for instance.

I bet you thought only the big dogs could do that.  Not anymore.  Now it’s possible for everyone to be a market maker from the comfort of your own home.

It’s simple, here is your 3-step process to untold wealth:

1. Place an order to Buy 100 shares UBD, limit $26.00
2. Place an order to Sell 100 shares UBD, limit $53.00
3. Rinse and repeat

With those two orders, you will now “own” both side sides of the bid/ask spread for Claymore U.S. Capital Markets Bond ETF (UBD).  Congratulations, you are now the market maker, and you stand to make more than 100% on every trade.

But wait!  Why stop there?  Why not expand your new empire?  Using the same process described above, you can become the market maker for these securities too:

• Buy 100 shares UEM, limit $21.00; Sell 100 shares UEM, limit $38.00
• Buy 100 shares GBB, limit $37.50; Sell 100 shares GBB, limit $45.00
• Buy 100 shares AYT, limit $.20; Sell 100 shares AYT, limit $41.00

You are now the market maker for Claymore U.S.-1-The Capital Markets (UEM), iPath GBP/USD Exchange Rate ETN (GBB), and Barclays GEMS Asia 8 ETN (AYT).  That last one is a real doozy – you stand to make 20,400% on every trade.  That’s better than owning a goose that lays golden eggs.

By now I’m sure you are wondering how this can be possible.  It’s simple – these four securities have been abandoned by their sponsors.  There are no sponsored market makers for these exchange traded products.  That means the job is available to anyone who places new orders that define the bid/ask spread.

Disclosure:  No positions in the mentioned securities.  Market conditions are constantly changing.  The examples above were derived from the following live quotes obtained at approximately 10:30am EST on Friday, March 6, 2009: UBD  bid= $25.00, ask=$53.50;  UEM bid= $20.00, ask=$39.00; GBB  bid= $37.00, ask=$45.67; AYT  bid= $0.15, ask=$41.87.

We’ve also highlighted other “low risk” alternatives to cash for those with the slightest risk appetite, hopefully adding a little current yield above money market fund rates.  Alas, there is substantial risk in almost every asset class these days.  Cash still may be the better alternative than the slight loss that a low risk bond fund can bring in this market environment.  (You can scroll back through all of our recent Picks of the Week here).

At the same time, parts of our banking system are insolvent.  The specter of more FDIC bailouts and having to wait in line to redeem your FDIC-insured CD is displeasing for some.  Investing your hard-earned money in “cash under your mattress” may not be so far-fetched.  One opportunistic company has taken that idea to another level – and gives us a unique Pick Of The Week.

Hollandia International offers a $20,400 SAFE T Bed, a luxurious platinum level bed with a heavy duty safe built right into the bed.  It’s quite the bed!  The New York Times interviewed the company’s owner and he claims the $20,000 investment is a fine decision.  You get both a good nights sleep and a safe place for your money.

In fact, Hollandia’s press release suggests the initial idea for the SAFE T Bed came from an international customer wanting a place to safely store a handgun, yet close to him in bed for security reasons.  Not coincidentally, the stocks of gun manufacturers Ruger (RGR) and Smith & Wesson (SWHC) have gone vertical in recent days as equity investors seek good ideas in a scary economy.  Ruger was featured here exactly three months ago, and it’s still a buy, even though we’re up +50% already.

Storing cash (and guns) in a safe place is a good idea these days and every day.  If you are fortunate enough to have $20k to spend on a luxury bed, then we’d advise buying the SAFE T Bed.   If you’d rather conserve the $20k in your rainy day fund, we also advise keeping those dollars clear of the stock market.  Best of Luck in these trying times.