The recent turmoil and volatility has presented us with a ton of great ways to play the market, interest rates, oil prices and an economic turnaround both in the U.S. and abroad.

In this post I wanted to go over a few ETF’s (Exchange Traded Funds) in particular, one directly dealing with interest rates and treasuries, and one dealing with the price of oil, and finish off the post with a quick roundup of some other ETF’s poised to provide stellar returns for corporate and commercial bonds.

They might not be sexy names, or even names that you’ve heard of before, but they offer a way to diversify your holdings, and take advantage of an unprecedented time in our history.

While not formal recommendations yet, these ETF’s represent great ways to diversify your holdings, take on risk intelligently and in a calculated way, and do something different with your money that doesn’t involve investing in just stocks.

In addition, ETF’s offer a great way for you to buy into themes (rising/falling commodity prices, interest rates, etc.), and industries that you otherwise would have no business investing in, or would have no access to in the first place.

So what do I got for ya? Here we go…

A Word of Caution

I will warn you, what I am about to show you and talk about is not for the faint of heart, timid, or for money that you cannot afford to lose.

Unlike the other investments that I talk about and recommend on my site, these don’t have any “fundamentals” or management to vet, balance sheets to look at, or other similar things that we can use to gauge risk, and give us an edge over Wall Street.

If you decide to play any of the ETF’s that I am writing about today, you do so at your own peril.

Remember that ETF’s represent a basket of securities, commodities, bonds, etc., and are usually never tied to any one company, or product, aside from ones like the oil fund, that specifically play on one theme.

As such, these funds move at the whims of the market, and can turn on a dime in either direction.

They are emotional and momentum based vehicles useful for playing panic in either direction.

Be wise, use tight stops, and tread lightly if you cannot afford to lose that money.

Let’s Talk Treasuries!

We’ve all been hearing about lower interest rates for home loans and that the U.S. government stepping in to take those loan rates down to as low as 4.5% for non-conforming loans.

What some out there might not realize, is that in the mean time, U.S. treasury yields have fallen precipitously, so much so, that the yield on a 3-month Treasury bill actually turned NEGATIVE for a time a few weeks back and sits precariously close to 0%.

You read that right: People are buying U.S. debt for little to no return, in fact even PAYING for a negative return, just to find some safety for their money and investments.

Would you say that that’s a little overdone and silly?

Yea, I say the same thing.

At the same time, yields on other U.S. treasuries like the 10-year and the 30-year notes have fallen just as much, and now sit at ridiculously low levels.

In fact just last week, there was a great article by Barrons outlining how the U.S. Treasury market is now the next “bubble” to pop, and is poised to come crashing down to Earth, and in turn, yields are poised to rise.

You see, the U.S. treasuries work inverse in that when the price goes up, the yield goes down, and vice versa.

So, with the craziness with U.S. equities that has been taking place over the last 12 months or so as a result of the financial crisis, consumer slowdown, commodity price swings, etc., there has been a serious flight to “quality”.

I use the term quality lightly because the way I see it, how high in quality is an investment instrument that you are literally paying for that yields negative returns that is supposed to be rock solid and safe and traditionally yield very steady and decent returns?

Is is better than losing 40% in the market over the last year? Sure I guess, but the way things have gone now, these traditional “slow-moving” investments and safe havens have become rich, and in turn look poised to tumble as yields and interest rates rise over time.

From the Barrons article:

The chief risk to the Treasury market stems from the potentially inflationary impact of both the Federal Reserve’s super-accommodative monetary policy, which has dropped short rates close to zero, and the enormous looming fiscal stimulus from the federal government. It also may take higher yields to attract investors — particularly foreigners — as the Treasury seeks to fund an estimated deficit of $1 trillion or more in the coming year.

So how do we play this theme then?

Well, traditionally, most investors can’t sell Treasuries short, but through the intelligent purchase of an ETF called the Ultrashort Lehman 20+Year Treasury Proshares (NYSE: TBT) you can in essence short treasuries.

Be careful though, this ETF moves at twice the inverse of the daily price movement in Treasury notes and bonds, and therefore is way more volatile than a straight bond fund.

However, with this leverage, it is possible to make 100% return with just a 50% move in Treasury prices to the downside.

Since the summer, the 20+Year Proshares has fallen almost 50% as Treasury prices have surged.

If Treasury yields return to June 2008 levels, the ETF could double in price, which is not entirely inconceivable.

Now let’s take a look at another ETF that I think you’ll be interested in…

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