Are you being smart with your investments?

It is time to learn about options. Most people do not know much about options. Its the last frontier of investing. Options are very powerful investment vehicles. They offer a way to get higher leverage from your money in the stock market or to protect you from downside risk. If your broker does not use them you are being cheated. 

Here are the top reasons I think you should be using them in this market more than ever before.

• The calls in your options portfolio will allow you to achieve big leveraged gains if the market catches most investors by surprise and rallies through year-end.
• The puts in your options portfolio will protect you against "flash crashes" and other disruptive market events and even allow you to profit in these situations.
• You can still benefit from the unlimited profit potential of option buying yet limit your loss from any trade to 20-30%.
• You can profit from market volatility regardless of the direction of the price movement.
• You can profit from buying calls on stocks that outperform, and at the same time buying puts on stocks that underperform their industry peers.
• You can achieve huge leveraged gains by buying options during expiration week, when premiums are extremely low. And now, with the new Weekly Options, there is an expiration week every week.
• You can profit from the strong tendency of the market to trade in well-defined ranges most of the time with a carefully selected option premium selling program.
• You can profit from the huge volatility around events like quarterly earnings reports
• You can profit by buying call options on stocks that are in long-term uptrends, at much lower dollar risk than buying the stock.

Helicopter Ben at it again? Deflation vs Inflation pick your poison

On Friday, Fed Chairman Ben Bernanke will speak at the Federal Reserve Bank of Boston Conference "Monetary Policy Objectives and Tools in a Low-Inflation Environment".

Jon Hilsenrath at the WSJ has a preview: Fed Chief Gets Set to Apply Lessons of Japan's History

Mr. Bernanke is preparing for a potentially important policy speech Friday, when he could detail his thinking on the Fed's next steps ... The conference is a reprise of a 1999 conference at which Mr. Bernanke and other academics took Japanese officials to task for failing to get their economy moving.

Here is the 1999 paper that Hilsenrath mentions: From Ben Bernanke (1999): Japanese Monetary Policy: A Case of Self-Induced Paralysis?

There is quite a bit about deflation and monetary policy in his 1999 paper, including arguing for a higher inflation target of 3% to 4%. Bernanke even made some "helicopter drop" comments before his well known speech in 2002: Deflation: Making Sure "It" Doesn't Happen Here

It is my belief that we can have quite a lot of stimulus to fight off deflation before we have to worry about inflation. As you see in the above aggregate supply graph, at some point after a considerable amount of stimulation you do get inflation and possibly hyperinflation.

Some great questions to answer in the future are:
Are we avoiding inflation expectations today because we are backwards looking at 20 years of little to no inflation?
Can we handle the medicine it will take to get rid of inflation?