NUVEEN MULT CURR ST GV INCM (AMEX:JGT)

You know it's pretty bad when you feel like this! It's like a bad hangover that just doesn't seem to go away fast enough. As of last Thursday, the greenback reached 16 month lows vs the British Pound and the Euro. The exchange rates are currently going for $1.65 and $1.46 respectively just in case you are curious. Remember that this is happening in the backdrop of a Euro Bond crisis that has been going on since last year. The reason why this is happening is because the ECB and the British Central bank have been raising interest rates to head-off rising headline inflation in food and fuel. In this country the FED has decided in their wisdom that there is no inflation so interest rates will stay near zero. These guys must be on some powerful narcotics to ignore a trend that has been going on for the last 10 years, but this is what inconvenient truths are all about. Lets look at the factors involved here and what it means to you:

1)Global Hot Money

For those who still remember their Macro Economics class, this is the pool of institutional money that constantly churns in the money markets; always looking for the best interest rates from any country willing to pay it. It's like going on a series of one night stands without consequences or the diseases. Ah, if life were only that perfect. There is always a constant competition between countries who need to attract capital flows (higher interest rates) and those who do not. Luckily for us we are not in that camp which is the beauty of being a reserve currency. Unfortunately, this will punish savers since they get next to nothing for their hard-earned savings since we have managed to inflate our currency at will with little consequences so far; at least that is what they want you to believe. Have you seen the price of gold and silver lately?

2) Japan and China

In order to have a threesome you kind of need two willing partners; in this case Japan and China. These 2 countries are by far the largest buyers of US government bonds in the world. For the past 20 years both of these two countries have been willing to fund our retail gluttony by purchasing our treasury bonds which help to keep our rates low so we can buy more stuff from them. Like all good things this is about to end. In the case of Japan, they are facing a monumental reconstruction costs due to their earthquake/ tsunami/ nuclear crisis. Their public finances are a complete mess so they will be forced to start selling their treasury holdings to pay the bill. On the other hand we have china, they have completely lost patience at seeing their capital erode with our inflationary policies. They have been a net seller of our bonds since January. They are diversifying away from US bonds to hard assets such as companies and resource plays that will help fuel their economic expansion. These trend will eventually drive up our interest rates because we will have to compete other countries who are willing to pay more or have better economies that people want to invest in. The sheer volume of bonds that we will need to refinance to help fund our massive budget deficits may either force us to launch QE3 if buyers do not show up which has already happened already last month on the 10 year bond auction. I never thought I would see the day we would have a bond auction failure for our government bonds.

3) Your dinner plate is now an investment!

Who would have ever thought that corn, wheat, and sugar could be so sexy. When it comes to commodities investing, it was oil, gas, and metals that stole the limelight. Not anymore! It seems people are willing to chase anything down as long as they are not holding dollars. It has been no coincidence that the dollar has slowly devalued over the last 10 years and the commodities have had a 10 year bull market. Adding the fuel to the fire was the boneheaded decision to convert food crops into fuel. Now, your everyday food grains now have to compete with refiners for the same supply. We have seen food and energy price increase exceeding 2% on a year over year basis. However, if you really want to believe Uncle Ben, this doesn't count and should not be counted in any discussion regarding inflation. I guess we all live in caves and eat sunlight for food.

What can you do about it?

Simple, if you have any treasury bonds in your portfolio held directly or indirectly through a mutual fund you should dump it. It will get very ugly in the near term. You will get your principal back, it's just that it won't be worth as much. The best way to tell Ben Bernake he is full of it is to vote with your feet. Invest in bonds of foreign countries who have brighter futures and central bankers with more sanity. It's nearly impossible for a private US citizens to purchase foreign bonds directly to us since they have a deal with our government to not sell them to us. The only people who can buy them directly are institutional investors. I've tried to find other loopholes, but it is not doable. They only way to gain this exposure is to buy a mutual funds that buys them.

I just discovered a great investment opportunity in a closed end fund from Nuveeen: Nuveen Multi-CurrencyShort term Government Income Fund (JGT). This mutual fund is different from you regular garden variety. This is an older form of an Exchange Traded fund. It has limited number of shares and it can be bought and sold throughout the day unlike traditional open-ended funds which can only be bought and sold at the end of the day. This fund employs leverage to increase the dividend payout which is currently running a dividend yield of 9%. There are 2 prices you need to be aware of: the market price and the NAV price(maturity value of he portfolio). When you buy these types of funds, make sure you are buying them at discount to NAV especially in the bond funds. I typically look for discounts of 12-15% before I get interested due to the use of leverage used by the fund manager. I need to see a margin of safety in case interest rates go up and the fund gets hit on higher margin interest charges. Right now this fund is sporting a 12% discount to NAV price. Another thing I love about this fund is that it holds bonds of countries with great growth prospects such as Chile, Turkey, Poland and Britain. For disclosure purposes, I currently own 1,000 shares of this fund