Mr. Speculator Bets on Rydex

03/19/2004 12:00 am EST


Lawrence Edelson

Editor, Real Wealth Report

Larry Edelson runs the Mr. Speculator portfolio in Safe Money Report.Currently bearish, a majority of his portfolio is now positioned evenly among the four specialized funds designed to benefit from rising interest rates and energy prices, and falling stocks.

"The two pillars that have kept the economy afloat over the last year have been the mortgage refinance housing boom and the spend-like-there’s-no-tomorrow consumer. So, if just one of these crumbles, the entire recovery is in for a whole lot of trouble. Our view is that both are already starting to falter. Regarding housing, buyers aren't buying and builders aren’t building. Sales of new homes dropped by 2% in January to an annual rate of 1.11 million–the slowest pace since May 2003. The number of unsold new homes on the market jumped to 370,000–the highest in eight years. And new housing starts fell by 7.9% in January.

"Regarding consumers, the Conference Board’s consumer confidence index fell from 96.4 to 87.3–the worst reading since last October. The reason: Americans worry more about the disappointing job market than do the highly paid experts on Wall Street. But on Wall Street, stocks are priced for perfection. Any disappointment on the economy is bound to knock them for a loop, with overvalued tech stocks taking the biggest beating.

"One way to profit from a decline is to buy shares in Rydex Arktos (RYAIX ), a mutual fund designed to appreciate 10% for every 10% decline in the NASDAQ 100. It looks like the NASDAQ has started its slide down a slippery slope, and the tech sell-off should accelerate. If you do not yet own Arktos, the time is right for you to buy, in modest amounts. Just remember that any investment in the stock market—whether you're betting on a rise or a fall—involves risk of loss. So, this is not for your keep-safe funds. Rydex Ursa (RYURX) works much like Rydex Arktos, but instead of the NASDAQ, it is designed to profit from declines in the S&P 500.

"We also like Rydex Energy (RYEIX ). The price of filling up your gas tank is rising. In California, the average price for a gallon of regular unleaded is up to $2.05; in Nevada, it's $1.94; in New York, it's $1.80. And it's not just gasoline—natural gas has jumped 12% from last year. At the same time, supplies are shrinking. The Energy Department reported that unleaded gasoline inventories fell by 1.6 million barrels to 203.4 million barrels—1.2% below the year-ago level. Finally, Rydex Juno (RYJUX) is designed to help you profit from rising long-term interest rates. Right now, they are still hugging the low end of their range. But the fundamental reasons we recommended this fund are still valid: huge government borrowing is bound to drive rates, and the value of this fund, to higher levels."

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