America's Financial Apocalypse, What Can YOU Do as an Investor?
Stock-Markets / Financial Crash Sep 25, 2008 - 04:53 PMBy: Mike_Stathis
Dividends At this point, there is very little you can do. If you have suffered large losses, you either have traditional mutual funds or you believed what the “experts” told you on television; perhaps both. If you have not already liquidated your holdings in the stock and bond markets, you might consider doing so after some market strength, if in fact that occurs anytime in the near future. Your ultimate decision should depend in part on your tolerance for more downside, your investment horizon, and whether you can write-off your losses. If you insist on remaining in the market, I continue to recommend healthcare, oil trusts, and cash.
If you are going to expose yourself to this market you had better be collecting large dividends from companies that have a strong dividend policy. I particularly like Pfizer and Pen Growth. But once again, understand that there is considerable downside to the market, which means even the best investments can decline in price.
Manage Risk
Depending how you define a bear market, there have been about 13 over the past 7 decades, averaging about 31% down (If you trace the data back further the numbers would be even worse). Ask yourself how “average” the current crisis is, and then you will get a better idea of the downside risk. Finally, as I discussed in my book and more recently in a previous article, http://www.marketoracle.co.uk/Article5809.html drawing a rough least-squares line through the 100-year performance chart of the Dow, the fair market value lands around 8500. And that's without a crisis.
Also note that corrections tend to overshoot this fair value mark. In other words, the possibility of a Dow below 8000 is not out of the question. But such low values are more probable for crash scenarios. If a stock market crash is averted, the market is likely to trade sideways with smaller sell-offs and rallies for a number of years, as the fair market value increases due to progression of this slope through time. This is basic information every sophisticated investor should know. Wall Street won't point it out because they are either too ignorant or don't want you to know the reality; perhaps a combination of both. But these scenarios are not based solely on charting. You also have to understand the macroeconomic picture. I wrote about this previously. I advise you to revisit this piece. http://www.marketoracle.co.uk/Article5809.html
Precious Metals
For those who continue their love affair with gold and silver, remember you need to trade the volatility. Gold is likely to reach $2000 over the next few years, perhaps sooner as one can ever predict exact timing (similar to the unexpected surge in oil prices). Either way, holding gold is a sucker's move (as is silver) for reasons discussed in my previous articles and detailed in my book. In short, if you are not able to trade gold's tremendous volatility you are exposing yourself to a good deal of risk the higher price you buy it. You need to remember that gold will eventually reverse its longer-term trend and settle in the $200 to $400 range, where it could remain for many years. If you do not agree, I suggest you study the 100-year chart.
It's gold. It's not a growth stock. It goes up and it comes down. You might want to check Kitco. You'll notice they only have gold charts going back to 1975. I wonder why. The answer should be obvious. Don't be naïve. Be smart and look at the 100- or even 200-year price chart of gold. You'll only get the unbiased truth from me because I'm not offering any gold for sell nor am I trying to gain your investment business. My only clients are institutions, not individuals.
You should also note that gold is NOT a hedge against inflation. It is a hedge against deflation. Anyone claiming gold to be a direct hedge against inflation simply has no idea what they are talking about – virtually everyone who mentions gold as an investment. It is also a hedge against a falling dollar which is sometimes linked to inflation. In the current economic environment, the dollar's fall has been linked to inflation so there is an indirect and inverse correlation with inflation and the dollar. Gold mainly rises during periods of crisis. You can confirm this if you track the spikes in gold throughout 2008 upon problems with the financials.
As the dollar continues to be debased, gold will continue to rise. And you had better believe the dollar will continue to be debased. Destroying the dollar appears to be Bernanke's main goal. But why might the Fed want to debase the dollar? As mentioned in “ America 's Financial Apocalypse” and even in my landmark article (which warned investors to sell the market and re-short the financials when the Dow was 13,200) a weak dollar would help cut the trade deficit. And the inflation created by the Fed would make it easier for Washington to pay off its staggering $10-plus federal debt, which will soon soar further from these bailouts alone.
As you may already know, SKF is an exchange-traded fund (ETF) which tracks the performance of the inverse performance of the financials, but does so by a larger magnitude. You can think of it as a fund that uses leverage to short the financials. As you might expect, the year-to-date price chart for gold shows similarities to that of SKF.
Foreign Currencies
You also might want to protect what I expect to be a continued fall in the dollar by investing in foreign currencies like the Yen and Swiss Franc. Make no mistake. As I have mentioned many times in the past, the real dollar crisis is ahead. The dollar could very well lose 50% of current values. One thing I am sure of. The dollar will make new lows.
Cash for Opportunities
Cash is the best way to position yourself to take advantage of America 's financial apocalypse – an historic event that promises to only get worse. But once the global recession subsides in a few years, Asia and Latin America will mount a strong recovery while America lingers in a silent depression, unbeknownst to most. Those who have cash to buy Chinese and Brazilian stocks will fare particularly well. My investment stance has not changed since writing “ America 's Financial Apocalypse” in 2006. Valuable forecasts and investment guidance don't change every month. They persist and are modified only after material events surface and alter the long-term trends. Always remember that.
By Mike Stathis
mike@apexva.com
Copyright © 2008. All Rights Reserved. Mike Stathis.
Mike Stathis is the Managing Principal of Apex Venture Advisors , a business and investment intelligence firm serving the needs of venture firms, corporations and hedge funds on a variety of projects. Mike's work in the private markets includes valuation analysis, deal structuring, and business strategy. In the public markets he has assisted hedge funds with investment strategy, valuation analysis, market forecasting, risk management, and distressed securities analysis. Prior to Apex Advisors, Mike worked at UBS and Bear Stearns, focusing on asset management and merchant banking.
The accuracy of his predictions and insights detailed in the 2006 release of America's Financial Apocalypse and Cashing in on the Real Estate Bubble have positioned him as one of America's most insightful and creative financial minds. These books serve as proof that he remains well ahead of the curve, as he continues to position his clients with a unique competitive advantage. His first book, The Startup Company Bible for Entrepreneurs has become required reading for high-tech entrepreneurs, and is used in several business schools as a required text for completion of the MBA program.
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Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.
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