The US economy is retracting, jobless claims are increasing, consumer confidence is dwindling, the housing market is cratering, oil prices are skyrocketing and the credit markets are tightening. Almost makes you want to stay in bed and pull the covers over your head. If you take in all this news and data about what is happening in the US and around the world it is enough to make any sane person curl into the fetal position. People are trying to get some form of normalcy back in their lives and at every turn a new twist seems to leap out. Wait, there’s more! Airlines are going out of business with no forewarning, oil is marching to new highs almost every day and the dollar continuously hits new lows. As I write these down in one paragraph I can see why these events are shaking people to their core. All of this happy news now coincides with more uncertainty, an election year which will prove to be an all out battle between McCain and Obama. If there is one thing the markets dislike it is uncertainty. I suppose that goes for Joe Q. Public as well. Have I depressed you enough yet?
The reason for this rant is a simple concept, common sense. People need to feel more empowered, not like they are riding the bus trapped by the whims of where the driver wants to let them off. How can someone gain the feeling of empowerment? First, stop watching the pundits and the talking heads on TV news. Why? They only add an additional layer of insecurity about everything that is going on. The focus should be on wealth preservation and aligning your portfolios, be they retirement or actively managed, to a time frame and a macro perspective. In essence, use common sense! Here are my thoughts:
- The dollar is at an all time low against the other major currencies. My belief is that a new administration, be it republican or democrat, will start supporting the dollar. Thus a small portion of the portfolio could be used to go long the dollar at these levels.
- Oil is at historic highs. This is a much more aggressive play but one could buy long term put options or LEAPS. This would allow an upside if oil declines from these lofty levels. Obviously, because these are not equity investments the investor runs the risk of a time value erosion of capital but they do provide a good hedge.
- Developing countries, the ones causing a massive appreciation in commodity prices, are probably a safe bet some with double digit growth for the last few years and probably for the next 5 or so. Solid country funds would be a good place to put some of the portfolio. If you can’t beat them join them…or at least make money on them.
Diversify your portfolio and don’t be stubborn and just look at it once a year. Your portfolio or liquid net worth is like a plant and needs to be tended to on a fairly regular basis. There is a lot of bad news out there right now very similar to 1992 when the US economy was at the absolute bottom. Do you see the analogy I am trying to make? Basically, no one, not even the pros, can pick the top or bottom and if they do there is a whole lot of luck involved. By concentrating on things you can control it will give you the sense of empowerment and probably get you to the next Bull market. Bottom line, use your COMMON SENSE.
**Note: Opinions expressed are that of the author and should not be construed as investment advice, unless you make money, then you can send me a thank you email.
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