Crash Market Stocks - Financial Tips On Making Money In The Stock Market

This week started off with a relatively flat trading day, as the Dow closed down just 13 points. It bobbled back and forth from red to green, but remained relatively flat for most of the day. There still lacks a "spark" for investors to get either excited or scared about the market. Each day rotates with positive and negative indicators, which just frustrates investors more. So for me, instead of playing a guessing game, I'm looking harder at things that have a bit more transparency and likelihood.

One thing is almost certain, the government cannot afford to participate much longer in 0% interest rates and other programs that are spiking the deficit. Our deficit for 2010, alone, is expected to be $1.6 trillion, followed by an additional $1.3 trillion added in 2011. We know it is the government's hope and intention to try and minimize the degree of economic decay throughout this recession, however, they are going to have to start picking and choosing their battles.

For just about the past year, we have enjoyed o% interest rates from the Fed. As of now, its presence is almost not even felt, which is scary when you consider just how monumental it is to have, essentially, a 0% discount rate from the Fed. Even though the 0% is a big factor in helping what little lending is being done at the moment, the fact is the Fed can't afford to keep it at such low levels for much longer. We can expect a hike in interest rates shortly. Maybe not the next FOMC meeting, but I believe it is in our very near future. As a result, how can I benefit from such a move? Well, here are a few ETF's that are working their way in my portfolio as a hopeful hedge against the hiking rates.

First off, what affect will climbing rates have on our economy? The most certain answer is a big influence on the debt markets, especially US Treasuries. As soon as volatility in interest rates begin to show, the first hard hit will be seen in long term bonds. US Treasuries are no exception to this. PST and TMV are both SHORT, longer term US Treasuries. PST is the UltraShort 7-10 year US Treasury, where TMV is the SHORT 3X 30 year US Treasury. In a normal supply and demand environment, as interest rates make their way up, we should start seeing rather aggressive selling of these long term bonds, thus making profits from these two ETFs potentially strong.

Well, where will all these liquidating bond holders go? The answer is shorter term bonds. In environments of increasing volatility in interest rates, investors tend to shorten their risk with shorter term lengths. They don't mind giving up some of their yield in return of a much shorter holding period. As a result, investors can then still earn a decent return, while not having to lock themselves in a 30 year bond. Bonds should continue to hold strong in the midst of this tumultous economy, so demand for Treasuries should remain strong. SHY is the iShares 1-3 year US Treasury ETF. Sure, with rising rates even short term bonds could suffer as well, however, I feel that they still have a much greater potential for stronger yields than long term bonds.

For the more sophisticated trader, a put option buy on the inverse of the above ETFs may be a good consideration, in hopes to have any ETF decay play to your advantage. In that case, a put option would be purchased on SHV, UST, and TMF for essentially the same effect. However, do keep in mind that put options have time restraints, where you can hold the actual ETF with no expiration period. For those that are looking for some practice trading, check out Wall Street Survivor, which is a fun fantasy stock trading site. Just some food for thought. Happy Trading.