I refer to traditional investments as the litter box. Inside the litter box are stocks, bonds, cash and real estate. Real estate continues to drop as unemployment and economic hardship forces the overleveraged homeowner into foreclosure and/or bankruptcy. As they begin to sell their stocks to pay their mortgage, things begin to trickle down into the stock market. Bankrupt and insolvent consumers, companies and financial institutions do not bode well for the stock market. Since a secular bear market in stocks can last for decades, the baby boomer retirement generation begins to sell, as well. As the companies go bankrupt, the overleveraged insolvent banks dealing in credit default swaps and mortgage backed securities go bankrupt. Fortunatley the banks are too big to fail, so the Federal Reserve rewards them with trillions of dollars that are magically being created out of thin air. In the end, the bill is forced upon the taxpayer through higher taxes and higher inflation. The “good news” is traditional investors can herd into the safety of the government bond market. They can buy long term government treasuries yielding negative real returns before they too collapse.
Investors looking to protect themselves from the economic crisis should consider shorting those assets with poor fundamentals and buying those assets with strong fundamentals. Buying gold and selling stocks is a prime example. The chart below shows how you would have done over the last few years shorting the S&P 500 and buying gold.
Government’s attempts to stimulate the economy and bailout the financial sector have not worked thus far, and will likely only make things worse going forward. The inevitable result will likely be severe inflationary pressures. To protect yourself seek out the bullish commodity related investments. Short government bonds, insolvent financial institutions and paper currency. Be aware of the entities that manipulate the markets, such as the president’s working group. Look out for changes in government policy that are designed to confiscate wealth.
If you are interested in getting the litter out of your portfolio and adding some glitter, feel free to call me at 312-324-0272 or email jared.irish@archerfinancials.com .
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The views and opinions expressed in this letter are those of the author and do not reflect the views of ADM Investor Services, Inc. or its staff. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright © ADM Investor Services, Inc.
