Investors, we are told, demand a risk premium for investing in stocks rather than bonds. Without that extra return, why invest in risky stocks if you can get guaranteed returns in bonds? This week we look at a brilliantly done paper examining whether or not investors have gotten better returns from stocks over the really long run and not just the last ten years, when stocks have wandered in the wilderness. This will not sit well with the buy and hope crowd, but the data is what the data is. Then we look at how bulls are spinning bad news into good and, if we have time, look at how you should analyze GDP numbers. Are we really down 6%? (Short answer: no.) It should make for a very interesting letter.

And for the last time, let me remind you of the Richard Russell Tribute Dinner this Saturday, April 4 in San Diego. We have had over 400 of Richard's fans (I guess you could say we are all groupies) sign up. A significant number of my fellow writers and publishers have committed to attend. It is going to be an investment-writer, Richard-reader, star-studded event. You are going to be able to rub shoulders with some very famous analysts and writers. If you are a fellow writer, you should make plans to attend or send me a note that I can put in the tribute book we are preparing for Richard. And feel free to mention this event in your letter as well. We want to make this night a special event for Richard and his family of readers and friends. So, if you haven't, go ahead and log on to https://www.johnmauldin.com/russell-tribute.html and sign up today. The room will be full, so don't procrastinate. I wouldn't want any of you to miss out on this tribute. I look forward to sharing the evening with all of you. I am really looking forward to that evening.

Rules have consequences. And sometimes they have unintended consequences. If I told you that the US government was going to give multiple tens of billions of taxpayer dollars to hedge funds and private investors, you would justifiably not be happy. I think the word angry would come to mind. But that is exactly what is happening, as a result of rules that were written for a time and place seemingly long ago and far, far away. Further, we are looking at potentially much larger sums being lost in the bank bailout (can we say hundreds of billions?), a reduced lending capacity at banks and, in general, a worsening of the very problems at the core of the crisis.

The good news is that it can be fixed, but the authorities need to get a sense of urgency. As Steve Forbes writes today in the Wall Street Journal, Obama is continuing with the worst of Bush's policies, making the crisis far worse than it should be. It is as if we are giving all 13-year-old kids a "F" in math because one kid failed.

Today's letter will look at some rather obscure rules which are having major unintended (and negative!) consequences, and what can be done. Then, if we have enough time, we will look quickly at Japan, unemployment, and a few more statistical predictions of when the recession will end that you should be very wary of. It's a lot to cover, but it should make for an interesting letter.

But first, and quickly, I just wanted to take a moment and remind you to sign up for the Richard Russell Tribute Dinner, all set for Saturday, April 4 at the Manchester Grand Hyatt in San Diego -- if you haven't already. This is sure to be an extraordinary evening honoring a great friend and associate of mine, and yours as well. I do hope that you can join us for a night of memories, laughs, and good fun with fellow admirers and long-time readers of Richard's Dow Theory Letter.

It was only a few years ago that I use to sit down at this computer on Friday and wonder what I would write about. In today's environment, there is enough to write three e-letters and still leave interesting copy on the editing floor. Today we look at the rather disturbing developments in the municipal bond market, Warren Buffett's offer to "rescue" the tax-exempt insurers, and ponder what the resolution will be. We also look at corporate earnings, and note how they have been downgraded significantly over the last year. There is (or will be) a connection between stock market prices, valuation, the current credit crisis, and the economy. There is a lot of ground to cover.

But first a quick note about my 5th annual Strategic Investment Conference, to be held in La Jolla April 10-12 (co-hosted by my partners at Altegris Investments). Paul McCulley of Pimco, Don Coxe of BMO (two of my favorite economists anywhere, and simply brilliant speakers), Rob Arnott, George Friedman of Stratfor, as well as your humble analyst and a dozen hedge fund managers who will show you how they navigate in these troubled waters. By the way, George's new book should be at the conference ahead of the bookstores. He has been writing on how the geopolitical world will change over the coming century. I have read a rough copy, and it is fascinating.

The unemployment numbers came in today, and if you look under the hood of the data, it is worse than the headline loss of 4,000 jobs. Should the Fed cut the interest rates in two weeks? Will it make a difference? Are we headed into recession (as predicted here in my January 2007 forecast issue)? When do we see a bottom in the housing market? Are we there yet? We look at all this and more. It should make for an interesting letter, if I can get my jet-lagged body to cooperate.

But first (and quickly) let me mention that I will be at the venerable New Orleans Investment Conference October 21-25. This is the grand-daddie of all investment conferences and features some of the top investment analyst and minds in the country. Among the many speakers are James Grant, Ann Coulter, Lawrence Lindsey, and good friends Marc Faber, Dennis Gartman, Doug Casey. Click on the link and then click on faculty to see what is one of the highest quality gatherings of top-notch speakers at any conference anywhere. You should check it out, especially if you have an interest in gold and natural resources, as some of the top investment analysts in that area are always there. If you are there make sure and look me up.

And quickly, speaking of gold, it is soaring. It closed at over $700 today, in partial reaction to the awful employment numbers, which was not good for the dollar. But there is another interesting story going on in the background, pointed out to me earlier this week by that South African gold maven Prieur du Plessis. He points out there is a massive build-up of call options in the October and December Comex gold contracts, similar to a period in November 2005 prior to the gold price surging by more than 50%. Smart money? Maybe. But the recent 6% move or so may not be all there is in the "barbarous relic."

Investors are constantly seeking "alpha," that elusive substance which yields returns in excess of a simple market portfolio. While I am flying today to Prague, this week good friend Rob Arnott teams up with associate John West to show that it is just as important to eliminate negative alpha. In fact, you could find an extra 2-4% in your returns just by doing so!

Rob starts with showing us what type of returns one can expect over the next ten years from the typical US market fund, and then shows how to remove some of the drags of negative alpha which hurt those returns. This is a very important piece and one I think you will want to read more than once.

Rob is the founder and head of Research Affiliates. He has published scores of articles in various financial journals, won four Graham and Dodd Scrolls for his writing, travels and is the keynote speaker at too many conferences to mention and is recognized as one of the top financial minds in the world. He wrote a chapter in my book, Just One Thing .

As predicted in this letter early this year, the credit markets have finally begun to tighten, as a major re-pricing of risk is underway as a direct result of the subprime markets. The subprime virus seems to be spreading, despite the view a few weeks ago that there would be no "contagion" in the rest of the credit markets. This week we look at the re-pricing of debt and take a rather positive view and explain how a bottom in the credit market is reached. As ugly as it looks on Friday afternoon, it's not all that bad yet.

What credit derivatives have taken away, credit derivatives may in fact give back. We look at market volatility, rising interest rates (yes, you read that right), the yen carry trade and more. And I show my penchant for foolishness by making a mid-year forecast on the markets. I also offer you a chance to make your predictions against the pros. All in all, it is a lot of ground to cover, so let's jump in.

But first, a quick comment about the recent drop in the stock market. 520 points on the Dow sounds like a lot. It certainly gets a lot of breathless attention on CNBC. But good friend and South African partner Dr. Prieur du Plessis writes in his latest blog that the recent volatility is not all that special. Thursday saw a drop of 311 points. He writes:

Last week we started a series on a very important book by friend Joe Ellis called "Ahead of the Curve." We continue this week looking at specific indicators that Joe thinks give us a heads up when the economy is about to slow down and the stock market will being a bear market. I am then going to marry those thoughts with some work on the yield curve, especially looking at what the yield curve may be telling us today.

Cutting to the chase, I am going to make an argument that it is high time for you to start thinking about taking a defensive posture on your stock market investments. None of the indicators we will be looking at give us anything close to exact timing, but there are enough red flashing lights to give us cause for concern about the direction of the market in the coming quarters.

The level of attention to the recent and mild inversion of the yield curve has bordered on hysteria in the media. Does it portend a recession? Or is, as Ethan Harris, the chief economist of Lehman Brothers suggests, the bond market simply on drugs? This week we pause in our series on trade deficits to look at the real meaning of the yield curve and what it does and, just as importantly, what it does not mean. I give you a basic primer on the yield curve, as well as links to more information than you ever wanted so you can read morefor yourself.

But first, thanks to all those who purchased a copy of Just One Thing this year. My editor tells me sales are doing very well, and another publisher has picked up the Chinese and Korean language rights. Thanks to a lot of word of mouth, like this note from Paul Howard:

When can we once again return to the stock market with some long term confidence? What's up with bonds and global reflation? This week we continue to meditate on the risks of lazy investing and single derivative thinking, ranging far and wide in an effort to understand the world in which we find ourselves.

While you are reading this letter on Saturday, in theory I will be setting up the grill for a little weekend Texas-style barbecue with good friend Bill Bonner in his chateau (that is the French word for money pit) in Ouzilly, France. Bill is quite bearish on most things economic and political, but he has way too much fun along the way to the fin de siecle to be considered a true pessimist. (Being with Bill gives me an excuse to drink good wine and write words like fin de siecle. See more below.)

One of today's trickiest investment questions revolves around interest rates and bond investing. We are in an economic environment in history like no other, so we have few direct parallels from which to draw wisdom. Should we keep our bond investments short-term and suffer pathetic yields, or move out the interest rate curve, getting more income but subjecting ourselves to the possible ravages of inflation should it rear its ugly head? Yet, even as there may be no direct historic repetitions, there are perhaps some rhymes which can yield some insight.