The economy grew in the fourth quarter by 5.9%, the most in years. The adjusted monetary base is exploding. Bank reserves are literally through the roof. The Fed is flooding money into the system in an effort to get banks to lend. An historically normal response by banks (to increase lending) would have been massively inflationary, causing the Fed to stomp on the brakes. Despite raising the almost meaningless discount rate (as who uses it?), this week Ben Bernanke assured Congress of an easy monetary policy, with rates remaining low for a long time. Many ask, how can this not be inflationary?

This week we look at some fundamentals of money supply and the economy. If you understand this, you won't get misled by people selling investments, telling you to buy this or that based on some chart that shows whatever they are selling to be what you absolutely have to have to protect your portfolio and/or make massive profits. And we touch on a few odds and ends. And yes, I can't resist, a few more thoughts on Greece. It will make for an interesting letter, as I'm writing on a plane to San Jose. And it will print a bit longer than usual, because there are a lot of charts.

Before we get into the meat of the letter, I want to give you a chance to register for my 7th (where do the years go?!) annual Strategic Investment Conference, cosponsored with my friends at Altegris Investments. The conference will be held April 22-24 and, as always, in La Jolla, California. The speaker lineup is powerful. Already committed are Dr. Gary Shilling, David Rosenberg, Dr. Lacy Hunt, Dr. Niall Ferguson, and George Friedman, as well as your humble analyst. We are talking with several other equally exciting speakers and expect those to firm up shortly.

Look at that lineup. These are the guys who got the calls right over the past few years. They called the housing crisis, the credit bubble, and the recession. And, in my opinion, these are some of the best in the world at giving us ideas about where we are headed.

Comments from those who attend the annual affair generally run along the lines of, "This is the best conference we have ever been to." And each year it seems to get better. This year we are going to focus on "The End Game," that is, on the paths the various nations are likely to take as they try to solve their various deficit problems, and how that will affect the world and local economies and our investments. We make sure you have access to our speakers and get your questions answered, and you'll come away with excellent, practical investment ideas.

The Sage of Omaha made a bet that was written up in a recent Fortune magazine article. Basically, Warren Buffett bet that the S&P 500 would outperform a group of funds of hedge funds over the next ten years. A million dollars to someone's favorite charity is on the line. This week we will analyze the bet, using it as a springboard to learn about valuation and value investing. As we will see, there are times that making a bet on the S&P 500 to outperform hedge funds (or bonds or real estate or whatever asset class) makes sense and times when it doesn't.

But first, an apology is in order. I get to travel a lot with my daughter and business partner Tiffani (actually, she runs the business) and meet new people. Over the years, she has become as fascinated as I have with their individual stories. Everyone has a story to be told or a lesson to teach. We have decided to write a book about those stories, looking at the differences in perspective between old and young, retired and working, those who are wealthy and those who aspire to wealth. What are the differences in attitudes, in work habits, in how you manage money, in how you look at the future, and a score of other items? How do all of these things correlate?

We sent an email to some of you a few days ago, asking you to fill out a survey to help us gather data, with the intention of sending it to everyone over time. After you complete this survey, I offer an audio stream of a speech I recently made.

In the early fall of 1998, I remember being on a flight to Bermuda from New York. I was upgraded and sat next to a very distinguished looking gentleman. He was going to a conference about re-insurance and I was going to speak at a large hedge fund conference. We hit it off, and began a very interesting conversation, one that still burns in my mind today. It turns out that he was vice-chairman of one of the largest insurance firms in the world, and was a real financial insider, seemingly knowing every big name on Wall Street personally. After he had a few drinks (he was clearly somewhat stressed), he began to talk about the Long Term Capital Management fund and the problems in the markets. He had had a ring side seat at the Fed-sponsored bailout proceedings.

"We came to the edge of the abyss in the financial markets this week,' he told me, "and then we looked over. The world does not understand how close we came to a total meltdown of the markets."

This week we look at the similarities and the differences between the credit crisis that is going on today and what happened in 1998, take a quick look at the threat from China to the dollar and see what exotic fish and exotic bonds have in common. There is a lot of ground to cover, so let's jump right in.

I am in South Africa as this week's letter is being sent out; so it is with some irony that the letter is focused on a topic that generally concerns only US-based investors, although what the SEC does has an effect on regulatory bodies abroad. This is a letter you may want to forward to your friends and associates.

The Securities and Exchange Commission (SEC) has posted a new proposed rule that would raise the minimum net-worth requirement needed to invest in private funds from $1,000,000 total net worth to $2.5 million liquid net worth. This is a major change, and it means that some 7% of American households will no longer be able to invest in private offerings. In my opinion, it is likely to become law in the not too distant future unless there is significant public comment. This week we look at the proposed rule and some of its consequences, as well as a very interesting proposal by SEC commissioner Roel Campos.

Let's start with some background. The current definition of an accredited investor was adopted in 1982 and was set at $1,000,000 total net worth, including your home and other assets. At the time, according to the SEC, some 1.87% of all US households were qualified to invest in hedge funds and other private equity offerings. Due to inflation and the growth in all sorts of assets, including homes, today about 8.5% of US households are eligible. The original rule was proposed to keep supposedly unsophisticated investors from getting involved in investments like hedge funds, which were considered riskier than mutual funds.

This week we will venture into the always hazardous area of making my semi-annual forecast. I make some non-consensus projections as to the economic climate for the next six months, and of course look at Fed policy. We will also quickly review my beginning of the year (2006) forecast and see what changes should be made. I also point you to a solid resource on gold and gold stocks at the end of the letter. It will be a very interesting letter, I think.

But first, a quick note on today's reversal by the District of Columbia Court of Appeals on the SEC requirement for hedge funds to register. If you read the brief 19 page ruling, it is clear that the Court did not buy into the argument of the SEC about the meaning of the word client, which was the legal basis for the SEC to require hedge funds to register. While I am neither a lawyer nor the son of a lawyer, it appears to me that they did not offer any other suggestions for the SEC to take another tack in their effort to regulate hedge funds. It will be interesting to see if the SEC tries to appeal what the court felt was such a clear cut case.

This week I am in La Jolla for my annual Strategic Investment Conference. It is packed, and of course I am quite busy, so not much time to write my regular e-letter. But a few weeks ago, Rich Smith from The Motley Fool did a fairly wide-ranging interview with me that just came out this week, and I thought he did an excellent job in putting together a coherent piece from what was a long conversation covering a lot of topics. So, let's see what Rich found interesting in my musings.

By Rich Smith

Do you have a net worth of $1 million? Own a hedge fund? If the answer to one of those questions is "yes," then chances are that you know John Mauldin -- president of Millennium Wave Advisors, author of the weekly e-letter "Thoughts from the Frontline," and perhaps the leading proponent of the theory that America is in the midst of what he calls a secular bear market. When you need a big-picture view of what's going on in the economy, John Mauldin is the guy to ask. Fool contributor Rich Smith did just that.

At precisely what point can we say that there are too many hedge funds? Are too many funds the reason hedge fund returns were down in 2004? What does the answer say about the potential for future returns? And how large might the industry grow in the next ten years? We deal with this and more in this week's E-Letter.

This letter was originally sent to those who have subscribed to my free Accredited Investor Letter a few months ago. The Financial Times recently ran an edited version as my first article with them. It has had a lot of positive responses, so I thought I would put it out to a larger audience. There is information on the Accredited Investor E-Letter, at the end of the letter.

This week we explore the problems with generalizations and assumptions. We will use as the launching point a rather poor piece of sensationalistic journalism from an otherwise excellent magazine. We look at the problems, costs of and the drive for the regulation of hedge funds. And I offer what may be a controversial opinion or two. This is not my usual genteel style, as I take the gloves off.

Let me note upfront that this issue is going to deal with hedge funds. Long time readers know that this is my economic backyard where I make the main part of my living. Normally, I do not discuss this specialized part of the economic scene in this letter, except in oblique references. I try to use this weekly space for general education and thoughts on the markets and investing.

"My interest is in the future, because I am going to spend the rest of my life there."
-- Charles F. Kettering

How well we deal with change is at the heart of the investment enterprise. I make a departure from our normal writing fare to think about the longer term future and some of the changes we will encounter. I speculate about the future of the investment business and what you will be faced with in a few years.

Given the wide disparity of views about the economy, it is little wonder that the reaction to Greenspan's latest speech has been all over the board. That is compounded by the fact that bond price expectations are totally disconnected from Fed expectations. Are the bond market critics just a bunch of whiners (give me back my risk free trade!) or is there substance to their major beef? Who's really in charge here? Can the Fed trump the market? Predictably, I answer the latter question with both yes and no. It all depends upon your time perspective, but timing is everything. There's a lot to cover, of course, so we begin.