Hi There !

I believe these will happen over the next 3 years:

U.S. economy will strengthen
Many jobs will be added
Inflation will come back
Interest rates will rise
Mortgage rates will rise
Bond prices will fall

Here's my question:  how can I make a buck from my forecasts?

One of my friends mentioned a mutual fund (RRPIX).  This mutual fund
goes up as bond prices go down.   Are there other investments which
move in a definitive direction (either up or down) when interest rates
go up?

In other words, it doesn't matter to me which way the investment
moves----what *does* matter is that it moves predictably.  A 5-star
answer would be 3-5
investments that historically have moved (in a predictable manner) up or down
when interest rates go up.

All comments greatly appreciated.

Thanks a million !
ron

The May 10 issue of BusinessWeek discusses exactly this scenario and
recommends a variety of potential investments.

"Higher Rates: A Survival Kit" by Anne Tergeson, BusinessWeek, May 10,
2004, page 122.  Also available at
http://www.businessweek.com/@@mF4y42QQ*k5hDg0A/premium/content/04_19/b3882119_mz070.htm?se=1
(may require subscription).

The first investment option discussed are "bank-loan" or "prime-rate"
funds, which buy parts of loans made to corporate borrowers.  The
article notes that, "[b]ecause the rates on the loans change
frequently -- typically every 90 days -- the funds' yields rise along
with interest rates."  One example of a fund of this type is Fidelity
Floating Rate High Income Fund.

The second investment option is inflation proof bonds.  The article
notes that, "...these bonds will outperform regular Treasuries as long
as inflation remains above 2.46% over the next decade," based on the
spread between the 10-year Treasury and Treasury Inflation Protected
Securities yields on April 26.  These can be purchased directly from
the United States Treasury or through mutual funds from firms
including Vanguard and Fidelity.  These are best held in a
tax-deferred account, such as an IRA, because of how they are taxed.

The third investment option involves shortselling.  There are six
exchange traded funds (ETFs), called iShares, that track various bond
indexes.  "Since long-term bonds are the most volatile, the 7 to 10
year and 20-plus year Treasury bond ETFs offer the greatest
opportunity for shortselling gains."  This strategy requires you to
have margin account, requires you to reimburse the lender for any
interest paid on the bond while you have shorted it, and has
potentially unlimited liability if your position goes against you.  As
you noted, there are mutual funds that also offer a chance to profit
from falling bond prices.  These are the Rydex Juno fund and the
ProFunds Rising Rates Opportunity fund.  These do not requiring margin
account, do not require you to reimburse the lender for interest, and
limit your potential losses to the amount you have invested.

I hope one or more of these investments will meet your needs. 
Personally, I agree with your economic forecast unless additional
spectacular terrorist attacks occur.

Sincerely,

Wonko

Thank you, Wonko !

ron

P.S.   Great moniker!  Always makes me smile...