A former Morgan Stanley executive has been accused of stealing $2.3 million from the New-York based investment bank over a period of seven years, according to published reports.

Richard Garaventa, a former vice president in the operations division of Morgan Stanley’s institutional securities, is charged with grand larceny and falsification of business records, according to the Manhattan district attorney’s office, reports said.

“The alleged conduct by a former rogue employee is in direct violation of the firm’s values and policies. We reported this matter to the authorities and have provided every assistance to their investigation,” Morgan Stanley said in a statement.

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Federal Reserve Chairman Ben Bernanke sought to assure Wall Street and Congress today that the U.S. central bank will be able to reel in its extraordinary economic stimulus and prevent a flare up of inflation when the recovery is more firmly rooted.

Bernanke, in prepared testimony before the House Financial Services Committee, also said any such steps will be far off in the future and that the central bank’s focus remains “fostering economic recovery.”

To that end, he again pledged to keep its key bank lending rate at a record low near zero for an “extended period.” Economists predict rates will stay at record lows through the rest of this year.

Bernanke is expected to face tough questions from lawmakers about taxpayer bailouts of financial companies, slow-moving government efforts to curb home foreclosures and efforts by the Obama administration to expand its regulatory duties.

Laying out a plan now to unwind the Fed’s stimulus may give Bernanke more leeway to hold rates at record lows to brace the economy. That is because doing so could tamp down investors’ fears that the Fed’s aggressive actions to lift the country out of its longest recession since World War II could spur inflation later on.

“It is important to assure the public and the markets that the extraordinary policy measures we have taken in response to the financial crisis and the recession can be withdrawn in a smooth and timely manner as needed, thereby avoiding the risk that policy stimulus could lead to a future rise in inflation,” Bernanke said. “We are confident that we have the necessary tools to implement that strategy when appropriate.”

The Fed chief also sought to beat back an Obama administration proposal that would create a new consumer protection regulator for financial services and strip some of those duties from the central bank.

Consumer groups and lawmakers have blamed the Fed for not cracking down early on dubious mortgages practices that fed the housing boom and figured into its collapse. Later this week, the Fed will issue a proposal boosting disclosures on home mortgages and home equity lines of credit. It also will include new rules governing the compensation of mortgage originators.

Bernanke also urged Congress to keep proposals to audit the Fed away from monetary policy duties. “A perceived loss of monetary policy independence could raise fears about future inflation,” he warned.

To revive the economy, the Fed has plowed trillions into the financial system in an effort to drive down rates on mortgages and other consumer debt. It also has created programs to bust through credit clogs, a key ingredient to turning the economy around.

When the time comes, the Fed will need to soak up that money.

Besides raising its key bank lending rate, the Fed can raise the rate it pays banks on reserve balances held at the central bank, Bernanke said. That would give banks an incentive to keep their money parked there, rather having it flow back into the financial system, where it can stoke inflationary pressures. The Fed also can drain money from the financial system by selling securities from its portfolio with an agreement to buy them back at a later date or it can sell securities outright.

Steering the economy from recession to recovery will be a delicate move for Bernanke — economically and politically.

On the economic front, Bernanke repeated the Fed’s forecast that the economy should start growing again in the second half of this year, but he warned growth would be slight, leading to higher unemployment.

Despite some improvements — including a stabilization in consumer spending and moderating declines in housing activity — the economy remains vulnerable, he said.

“Job insecurity, together with declines in home values and tight credit, is likely to limit gains in consumer spending,” Bernanke said. “The possibility that the recent stabilization in household spending will prove transient is an important downside risk to the outlook.”

The nation’s unemployment rate climbed to a 26-year high of 9.5 percent in June. The Fed says it could rise as high as 10.1 percent this year, and stay elevated into 2011. The post-World War II high was 10.8 percent at the end of 1982, when the country had suffered through a severe recession.

Expectations for a lethargic recovery should keep a lid on inflation this year, Bernanke said. With consumers likely to stay cautious amid rising unemployment, companies won’t be able to jack up prices.

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Asset classes go up and down. Precious metals are, of course, another asset class. They move with the economic tides. In the past 30 years, gold has rocketed up and plummeted down.

At several points in the past 30 years, things were so bad that gold sellers were like the proverbial Maytag repairman. They led lives of quiet desperation about which no one cared. Because like the late Rodney Dangerfield, gold got no respect.

Heck, between 1999-2002, the British government sold a large amount of its national gold, nearly 395 tonnes (metric tons), for about $275 per ounce. The Bank of England used the proceeds to purchase (ahem) “high-yielding” assets, like bonds. I suppose it seemed like a good idea to somebody. But really. In hindsight, how dumb was that? The British used to fight wars for gold (remember the Boer War, anyone?) Now they’re selling gold to buy bonds? They used to hang people for lesser crimes.

Last March 2008, gold sold for over $1,000 per ounce. Then the price retreated 30% as oil rocketed from about $100 to $147 per barrel. But even though gold fell back in price, it was still selling, on average, for almost three times what the Brits took in less than a decade ago. You didn’t do that with bonds. So the lesson is that we have to keep our eyes open about cycles and trends, even with something like gold.

Just in the past six months, almost every nonprecious metal asset class has been headed down. The stock markets have been tanking. Prices for everything from aluminum to zircon are way down. Oil has been bottom-fishing. The world is sliding downhill into deep recession. It’s a long litany of bad news out there. Except for precious metals, which have held their own.

Lately, precious metals have been in a stealth rally. It was not front-page news, until last week when gold touched the $1,000 mark again. Operating gold miners hit lows in October 2008…and they’ve all been rising in the markets ever since.

Investors in a Mass Migration to Gold and Silver

What’s going on? It’s a worldwide trend. Investors have been flocking to gold and silver. There’s a money migration going on. And I mean BIG money is migrating. It’s like those herds of zebras or wildebeests or gazelles in Africa. When they migrate, the earth shakes and the ground is just a moving kaleidoscope of hides and footprints. The dust clouds blow high into the sky.

Yes, the world economy might be in a recession. People across the world are worried about their job and security for their family. But other people with big bucks are scooping up gold and silver. Those buyers are looking for investment safety.

Moneyed investors don’t trust the world’s governments or paper currencies. So they are going with gold and silver. The mines and mints are having trouble keeping up with demand. Exchange-traded funds (ETFs like, for example, SPDR Gold Shares, GLD are buying huge volumes of gold and silver. (And they ought to be buying more. At the margins, at least, it appears that even the ETFs are holding “paper” gold rights, as opposed to the real McCoy metal.)

Who’s Holding the Metal?

Let’s look at silver. In January 2006, the total silver held in ETFs was about 40 million ounces. By January of this year, 2009, the total silver in ETFs exceeds 280 million ounces. That’s an increase by a factor of seven in just three years.

The story with gold is just as dramatic. Who ever heard of a gold ETF until just a few years ago? But by the end of 2008, gold holdings of ETFs reached a record level of 1,090 tonnes, according to the World Gold Council (WGC). Thus, ETF holdings now exceed those of Switzerland and many other large and important nations. (Check the listing below.) In the fourth quarter of 2008, investors purchased ETF gold interests representing 96 tonnes of gold. (Far more than the total gold reserves of Australia.) This followed the purchase of an unprecedented 145 tonnes (more than the reserves of Saudi Arabia) in the previous quarter, according to the WGC. These are astonishing levels of demand, where there was almost none just a few years ago.

Just for comparison, here are the approximate gold holdings of a list of major countries as of the end of 2008, plus the International Monetary Fund and the European Central Bank. Wow!

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Until very recently, most people considered money market mutual funds as safe as bank savings accounts. The funds provided a haven for people who wanted a liquid asset with a better return than a savings account generally provides. But last fall, when the financial markets were melting down, there were runs on several money markets mutual funds. If the government hadn’t stepped in, things would have gotten ugly.

The Washington Post reports that this is prompting the SEC to propose changes to tighten requirements for money market mutual funds. That seems like a no-brainer. I’m just not sure why such requirements weren’t required from the onset.

Here’s the Washington Post’s description of the SEC’s proposed changes:

One proposal would require that funds maintain 5 percent of their assets in cash or bonds that could be sold within a day. That would make it easier for funds to give customers their money back if a rush of redemptions came in. Funds don’t need to maintain such a reserve now.

Another proposal may require funds to invest in only the highest-quality bonds, as judged by credit-rating firms that assess the safety of investments. As of now, funds can invest in bonds of the highest level and second-highest level of quality.
A third proposal would shorten the maximum maturity of bonds that funds can invest in. Currently, under SEC requirements, the average bond in a fund’s portfolio cannot mature in more than 90 days.
I think all of these proposals have something in common: they closely resemble the way bank regulators think about deposits.

The first requirement is almost identical to a bank’s reserve requirement. If people want to withdraw cash, then the bank needs to have cash on hand to accommodate that request. The same should apply to money markets.

The second and third proposals are both variations on bank capital risk-weighting. If banks hold risk assets, then those assets don’t count as much towards satisfying capital requirements as safe assets like cash or government bonds. The latter two proposals are a roundabout way of forcing money market mutual funds to have less risky assets by requiring only the highest-rated bonds and shorter maturities.

These proposed changes make sense to me precisely because they so closely relate to regulatory requirements banks face to safeguard their deposits. After all, people use money market mutual funds these days in almost the same way they use banks savings accounts. Why shouldn’t similar regulatory measures apply to each?

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If so many trillions of dollars weren’t riding on it, the hoo-ha over the release of the results of the two-day meeting of the Federal Open Market Committee — expected this afternoon — would be laughable.

Huddled at their Bloomberg terminals and staring at CNBC, the world’s biggest movers and shakers at banks, hedge funds and giant corporations are anxiously awaiting word to emerge from the holy of holies — will interest rates edge up? Will they stay the same? What message will be delivered? Will it be a clear statement or that special Fed combination of inscrutable and banal?

The tension will abate when we finally learn what the Fed solons have decided. Tomorrow, we’ll spend the morning reading newspaper coverage and interpretation of the news and watching a collection of experts on TV commenting wisely on what it all means.

And then we’ll re-enact the ritual all over again in a few months.

I don’t mean to minimize the import of the Fed’s decisions on interest rates and the money supply. In the short run, the Fed’s moves and utterances affect the price of loans, mortgages and other credit instruments, sending ripples and sometimes shock waves throughout the economy.

Over the longer run however, it’s the big, lumbering, diffuse world economy that determines interest rates and currency values (a reflection of money supply), not the Federal Reserve Board’s governors. But that view of reality is too lacking in drama and is too frightening — since it implies that the economy is ultimately uncontrollable — to win many converts.

Just like the Ozians needed to believe in their wizard, it seems that we need to believe that the Fed has almost supernatural powers. There seems to be a collective hope that Ben Bernanke need only pull the right levers behind a big protective curtain for everything to work out just swell.

Unfortunately, Ben and crew are only human. Even sainted Alan Greenspan is a fallible mortal. Despite his protestations, he was just as clueless about the mortgage bubble as most of the rest of us.

So let’s strip the Fed of the godlike powers we ascribe to it and imagine what really goes on in those top-secret Open Market (how’s that for an oxymoron?) meetings:

“Do you think we should increase rates by a quarter percent?” asks one governor.

“I dunno, what about three-eighths of a point?” says another.

“Oh, let’s wait a while and see what happens,” suggests a third.

I’m sure the actual conversation is more somber and data-filled, but I don’t doubt for a minute that the governors are as incapable of hitting the “correct” interest rate as you or I might be.

As economic philosopher Friedrich Hayek pointed out in “The Fatal Conceit,” economic planning can’t work, because the planners don’t and can’t have the information to make price and resource allocation decisions that only markets can provide. That the Fed can decide the proper rate of interest and supply of money is a conceit. It may not be fatal, because they lack total control, but it sure is laughable

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Spend less than you earn - invest the difference.

This is the only way you can accumulate the money for your investment fund. Your money can’t work for you if you don’t have any money to put to work.

Sure, it takes a bit of sacrifice to put away $100 a month, $200 a month, 10% of your salary, or whatever you decide is right for you. But by sacrifising a little bit every month, you’ll have all the money you want for years and years and years.

It is said: “A penny saves is … not very much.”

That’s probably true. However, “Saving 65 cents a day in pocket change will add up to tens thousand of dollars over time.”

Consider this. It’s almost imposible to become rich by spending more than you earn. Most people spend more than they earn. Most people aren’t rich.

Use a part-time job or a part-time business to add more money to your investment account.

By adding this extra income, you’ll cut years off your personal plans to wealth. Getting rich quicker is good, right?

Use people leverage to add more money to your investment account.

You can turbocahrge your journey to wealth by employing other people in your part-time business or by taking advantage of network marketing.

Buy things that appreciate. Don’t buy things that depreciate.

Stocks, mutual funds, and real estate appreciate over time. That means your money is working for you. Stereos, fancy clothes, automobiles, and big screen television depreciate over time. That means you are going backwards - that you are losing money. That’s not the way to get rich.

Own your own house.

Renters and homeowners both make payments everymonth. You won’t get rich collecting rent reciepts. You get rich by owning real estate.

Get a good tax accountant.

You want to minimize your taxes so that you’ll have more money working for you in your investment account. Your tax accountant can show you ways to reduce, defer or eliminate taxes on your investments. You can reduce the effects of taxes on your extra money income by investing through IRAs,Keogh plans, 401s and other tax-favorable investment vehicles.

If you are really worried about paying taxes on the extra money you are earning, simply work a few extra hours for the taxes or arrange to have extra taxes taken out of your regular paycheck.

Avoid debt.

Some types of debt are good. An example would be the mortgage on your home ( assuming you’re bought a home within your means). This is debt on an appreciating asset.

Most debts are bad because you are paying interest on that debt. Paying intere4st is having your money work against you. It is robbing your investment fund of valuable capital that could be used to work for you.

Worst of all is paying interest on a depreciating asset such as automobile or stereo. Not only are you losing money by paying interest, but the item you are paying for is also losing value at the same time. That is what’s called a “double whammy.”

If you have a lot of debt siphoning away your salary, maybe the first place for you to invest your investment money is in reducing your debt. This will ultimately free up more money in your monthly budget that you can put into your investment program.

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The first three months of 2009 were absolutely brutal for venture capital, with clean energy leading the way with a decline of 87 percent compared to the same period in 2008.

Overall, United States venture capital investments fell 61 percent to $3 billion in the first quarter — the lowest level in 12 years, according to the National Venture Capital Association.

The average venture capital investment also fell from $7.8 million in the first quarter of 2008 to just $5.5 million.

With the IPO market similarly in the toilet, investors are seeing little hope of the short-term windfall that seemed so easy a few years ago. Without a ready and willing stock market to dump speculative investments on, investors are forced to continue feeding start-ups, hoping that they’ll generate income at some point in the distant future.

With speculative ventures like clean technology, investors just weren’t willing to tie up funds without a visible exit strategy.

Some investors are pointing to the well-received IPO of Rosetta Stone as a sign of thawing in the IPO market that will quickly lead to more aggressive venture capital investing — but I think it’s a mistake to put too much faith in a multi-billion dollar trend developing from a single IPO of a well-established brand.

Rosetta Stone has a product and delivered net income of $13.9 million on revenue of $209 million in 2008 — a level of success that most IPOs don’t have in a more normal market. I’d say that Rosetta Stone is more likely to be an anomaly than a sign of things to come.

Venture capital investments will turn around at some point, and the stimulus package will probably be a large driver of clean energy investment until that happens.

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The past 18 months or so have not been very kind to Wall Street insiders and hedge fund managers.

These investment gurus almost caused a worldwide economic collapse. Many of them are now out of business.

Hedge funds have been hit particularly hard. At last count, 114 hedge funds from 69 fund families have imploded.

How have followers of a boring buy and hold index funds strategy fared?

When I wrote The Smartest Investment Book You’ll Ever Read in 2006, I warned investors about the perils of stock picking, market timing, and actively managed mutual funds. I told them to stay away from brokers and advisors who engaged in these practices, which includes 95 percent of them.

Instead, I advised investors to simply capture market returns using low-cost index funds. I told them exactly how to do it, without using any broker or advisor. Here are the three simple steps to follow:

1. Determine your asset allocation by taking an asset allocation questionnaire. Many are available for free on personal finance websites and I have one on my site you can use (see SmartestInvestmentBook.com).

2. Buy three low-cost index funds directly from Vanguard (used in this example, but you can choose similar funds from other fund families):

The Total Stock Market Index Fund (VTSMX). Put 70 percent of the amount allocated to equities in this fund.

The Total International Stock Index Fund (VGTSX). Put 30 percent of the amount allocated to equities in this fund.

The Total Bond Index Fund (VBMFX). Put 100 percent of the amount allocated to bonds in this fund.

3. Rebalance your portfolio once or twice a year to keep your asset allocation intact or to change it if your investment objectives or tolerance for risk changed.

Brokers ridiculed my advice. They said they could “beat the markets.” They derided index funds as fine for “novice investors” who didn’t have the time to “study the markets” and, presumably, use their services.

I computed the returns of a 60 percent (stocks) and 40 percent (bonds) portfolio invested in the three Vanguard funds noted above. I ran the numbers from January 1, 2008, through May 8, 2009. This was a terrible time for the markets, as everyone knows.

I used a 60/40 asset allocation since that is the asset allocation used by most pensions and endowments. Here’s the result:

A loss of 18.50 percent.

No implosions here.

The unusual market volatility we have experienced has brought out the worst in the financial media and in brokers and advisors. Cramer is still saying that he can tell you when to get in and out of the markets and that he can pick stock winners.

The data tells a far different story. According to CXO Advisory, Cramer’s stock picks are right only 46 percent of the time, which is less than you would expect from throwing a dart at a list of stocks.

Other self-styled experts freely give advice about market timing and asset class selection. How many times have you heard that you should “flee to safety” or that now is the time to “buy gold”? My personal favorite is “buy and hold is dead.”

I am not suggesting that there is just one way to invest. However, there is only one intelligent way to invest.

It is the real holy grail of investing.

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The uncertainty about the value of the dollar during its current tumble raises lots of questions about where to put your cash. You’re probably wondering, is there any true safe haven today? You may be thinking the only true safe haven is placing your money under your mattress, but that won’t work out very well for you. Your money won’t be lost to a stock or bond market slide, but you’d be giving up any chance of increasing your portfolio’s value. If the dollar truly does fall or inflation kicks in, it could be worth a lot less.

So where do you turn in this unsettled market? Many think asset allocation is dead, but I’m still a big believer in that old style of investing, even with the current ups and downs of the marketplace. Allocating your portfolio with the proper mix of assets will give you a hedge against just about any situation. The four main choices — stocks, commodities, bonds and cash — give you many options for managing your portfolio.

So what are the pros and cons of each?

* Stocks — When the dollar is weak stocks tend to go up. When a currency falls it creates inflationary pressures and investors jump back into the stock market. Mild inflation helps stocks, but if inflation continues on an upward spiral out of control everyone gets hurt. Now that the dollar has slipped 12 percent since March (when the stock market was at its low), you can see a steady upward climb in stocks as the dollar fell between March and June. But, if the dollar takes an even steeper tumble no one knows how bad it will be for stocks but it won’t be good news. “The stock market bubble, the Treasury bubble, the real estate bubble - what is the common link between all three bubbles? The dollar.” Lee Markowitz, partner of Continental Capital Advisors, told CNBC. “The end is near for all the bubbles because the dollar is getting so much pressure from currency markets and politicians around the world.”

* Commodities — Gold and oil are the biggest beneficiaries of investor dollars when investors seek commodities for safety. Commodities provide a good hedge against both a dollar fall and a stock fall. In addition to gold and oil, two other necessities of life - timber and water - can make a good mix of safe commodities to hold. But, right now could be a bad time to buy gold because gold is nearing record highs. “Gold is getting close to a record high. It will be interesting to see how these factors sort themselves out,” Rich Berg, CEO at Performance Trust Capital Partners told CNBC.

* Bonds — When it comes to safety, the safest types of bonds are U.S. Treasury’s but some question how long that will be the case as the U.S. government continues to add to its deficits. Even Ben Bernanke wants to put on the brakes. But will the U.S. act quickly enough to prevent a further slide in Treasury yields? Investors are staying on the short end of the yield curve and showing a definite preference for 2-year notes rather than long-term commitments. China has been watched the closest. “What the Chinese are doing is moving some of their long-term assets into short-term so they can make a quick exit strategy,” Peter Navarro, an economist at the University of California, told CNBC. But, bonds are still seen as a safer haven than stocks. Yet Navarro said China is “setting up all these bilateral currency deals with countries around the world so they can back the dollar out. We are literally living on borrowed time.”

* Cash — Cash is thought to be king, but which currency. Holding a balanced portfolio of currency including the dollar, British pound, euro, Swiss Franc, and Yen can give you a hedge, but knowing what the right mix will be at any given time requires a good knowledge of world politics and world economics. Foreign currency traders take years to learn their trade, so if you’re thinking of adding a foreign currency mix to your portfolio, researching and selecting a professionally managed fund would be your best bet unless you know you can handle the wild world of foreign exchange trading - where you can lose thousands in minutes.

As an investor, know your options, but hedge your bets. Decide on a asset allocation that will let your sleep at night. Investing is treacherous right now, but hiding your money under a mattress is not the best solution.

Lita Epstein has written more than 25 books including the Complete Idiot’s Guide to Value Investing and Complete Idiot’s Guide to Foreign Currency Trading.

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