Where to Invest in V olatile Markets Money Map Press

http://moneymappress.com/2011/10/04/where-to-invest-in-volatile-markets/

Skip to content

Home Trading Services Money Map Report Energy Advantage Bios Contact Us FAQ Elite Memberships

Where to Invest in Volatile Markets

October 4, 2011 By Keith Fitz-Gerald Dear Reader, My wife and I spent a good deal of Sunday morning at the local skate park, watching our younger son Kazu navigate the many bumps, turns, jumps, and rails. (Hes only nine, so were still cool enough to be seen there with him.) Jumps, Ollies, halves, high sides, grinders I can never keep the names of those tricks straight. But what impressed me was this: No matter how many times he wiped out, he got right back up and went at it again. It wasnt so much the magnitude of Kazus tricks, but how he seamlessly flowed from one series of obstacles to another each time turning them into something positive. Seems to me theres a lesson in there somewhere if only because the worlds markets are off to a rocky start again this week. Take a look at this chart from yesterday, and youll see theres not much positive to speak of anywhere in the world.

1 of 6

1/9/2014 8:21 AM

Where to Invest in V olatile Markets Money Map Press

http://moneymappress.com/2011/10/04/where-to-invest-in-volatile-markets/

Source: FT.com Heres whats on my radar: Recession risks rising (says Goldman Sachs) Economists call for debt relief Last Fridays hissy fit

Lets start with the rising risk of recession.

Weve talked about this for some time now (and prepared for it along the way), so its not a surprise that yet another economic forecaster has seen the light. This time, its Goldman Sachs economic team. They sent a note to clients stating the obvious that recession risks are rising and that U.S. unemployment could climb to 12%. Other highlights of the missive, according to CNBC (I have not yet seen it myself), include the following observations: housing and auto markets will grow at their minimum rates, so there isnt room to fall; GDP will contract by 1.4%, versus the normal 2.3%; and the monetary and fiscal policies that could hasten a recovery are maxed out (or at least perceived as maxed out). This sounds like Japan in the late 1990s Having lived through that mess firsthand, Ive got a terrible sense of dj vu I cant shake. Key Takeaway: Our portfolio is well prepared for this contingency. Were going to continue to play defensively with a two-pronged focus that includes fresh choices in low beta, high-dividend stocks and defensive non-cyclical sectors that will complement choices. Low beta stocks, by the way, are less volatile than the general markets. Theyre useful to have when the waters get rough, because they can smooth out returns and offer more downside resistance. Its much the same with high dividends. Cold, hard cash can help smooth out day-to-day volatility while ensuring upside that, over time, can literally pay for itself. Think Altria Group Inc. (NYSE:MO), McDonalds Corp. (NYSE:MCD), and Vodafone Group plc (NasdaqGS:VOD). All three are already core holdings in our 50-40-10 portfolio. The team and I are hard at work on two more such choices that will be in your hands next week in the November Money Map Report so stay tuned.

Some economists are now suggesting massive debt relief as a means of

2 of 6

1/9/2014 8:21 AM

Where to Invest in V olatile Markets Money Map Press

http://moneymappress.com/2011/10/04/where-to-invest-in-volatile-markets/

jumpstarting the economy.

This is an interesting development. It suggests that many analysts are beginning to figure out what you and I have known all along that you cant stimulate your way out of a crisis caused by too much debt by throwing more debt after it. Better late than never, I suppose Stephen Roach, who is the non-executive chairman of Morgan Stanley Asia, has even gone so far as to call for a Debt Jubilee, wherein the Feds would broker a sort of debt forgiveness not unlike that in Biblical Israel (where debts were forgiven approximately every 50 years). Considering that household debt as a percentage of GDP was a staggering 100% heading into this crisis, thats a noble notion indeed. Today that figure is down to 90%, so theres been some deleveraging. But the game is a long way from over. Millions of consumers are still trapped in mortgages they cant afford and facing skyrocketing credit card payments and student loans, among other things. Heres the thing, though Any involuntary haircut that involves writing down the debt will crater the markets especially if it starts in America. Here, consumer debt accounts for almost half of the $9 trillion in global bonds backed by mortgage pools, car loans, credit card, and student debt that have been sold to pension funds, endowments, hedgies, and insurance companies. Bear in mind that that figure does not include the $4.1 trillion in Fannie and Freddie debt implicitly backed by Uncle Sam. He has his fingers deep in our pockets at the moment. Key Takeaway: Banks, bondholders, and investors all have competing interests here. I, for one, do not want to reward bad behavior by taking an involuntary financial hit simply to make a gift to those who were careless, foolish, or simply stupid with their money. Unless youve got money to burn and are an extremely aggressive trader stay away from financial institutions in general (as we have done in the Money Map Portfolio). Any write-downs no matter whos brokering the deal or whos bailing out whom will cut deeply into capital reserve requirements, and then strike like a bolt of lightning when it comes to earnings and bond payments. Thats why I strongly urge you to pick up shares in Rydex Inverse S&P 500 Strategy (RYURX). If youre under the 5% allocation we suggest, add to positions youve already got. Not only will this inverse fund help hedge any drop in the financial markets that happens when the haircut discussions get under way, but it will help stabilize the income were after when it comes to dividends, too.

Lets wind up with a quick look at Fridays trading.

It was abysmal. All the major averages took a pounding. Traders didnt just walk for the exits, they ran each other over trying to get there. The net result was the S&P 500s third-worst showing since 1928 (and you know what happened shortly after that). I dont want to rain on your parade, but lets be real: Until the free hand of risk is allowed to return, and the worlds central bankers understand that bailouts are pure folly, this is going to continue. Is there any chance I am wrong? Sure But at this point I dont see how we are going to avoid a catastrophic Greek default and a European banking crisis that embroils our banks, too. So what shall we do?The same thing weve been doing for months now

3 of 6

1/9/2014 8:21 AM

Where to Invest in V olatile Markets Money Map Press

http://moneymappress.com/2011/10/04/where-to-invest-in-volatile-markets/

Key Takeaway: Were using trailing stops to harvest profits where we have them and protect our capital against losses before they get out of control. We are confining our new money to defensive choices that will help stabilize our returns and, in some cases, lead to still more profits ahead. And we are continuing to invest in resources and resource-related holdings as a means of preserving our assets in the face of significant doubts about the viability of the worlds paper money system. When the markets do turn (and they will eventually), youll be the first to know because Ill tell you and well pile back in, just like we did the last time around. In the meantime, hang in there We will get through this together. Lets check in on our latest trailing stops. Base Builders: Nuveen Quality Income Municipal Fund (NYSE:NQU): Use our protective stop of $11.98 iShares Barclay TIPS Bond Fund (NYSEArca:TIP): Use our protective stop of $88.58 Pimco Strategic Global Government Fund Inc. (NYSE:RCS): Use our protective stop of $9.56 Vanguard Wellington Fund (VWELX): Use our protective stop of $26.18 Growth and Income: ABB Ltd. (NYSE:ABB): No stop: January 3, 2008, position Altria Group Inc. (NYSE:MO): Use our protective stop of $23.15 McDonalds Corp. (NYSE:MCD): Use our protective stop of $72.63 Vodafone Group plc (NasdaqGS:VOD): Use our protective stop of $23.74 iShares U.S. S&P Preferred Stock Index Fund (NYSEArca:PFF): Use our protective stop of $32.37 Ecopetrol SA (NYSE:EC): Use our protective stop of $34.50 Linn Energy LLC (NasdaqGS:LINE): Use our protective stop of $30.68 Raytheon Co. (NYSE:RTN): Use our protective stop of $35.49 AGL Resources Inc. (NYSE:AGL): Use our protective stop of $31.07 Pentair Inc. (NYSE:PNR): Use our protective stop of $25.97 General Electric Co. (NYSE:GE): Use our protective stop of $12.25 Rocket Riders: WisdomTree Dreyfus Chinese Yuan (NYSEArca:CYB): Use our protective stop of $19.37 Kubota Corp. (NYSE:KUB): Use our protective stop of $36.22 Cubic Corp. (NYSE:CUB): Use our protective stop of $30.85 Rydex Inverse S&P Strategy (RYURX): Use our protective stop of $29.78 Micromet Inc. (NasdaqGS:MITI): HOLD Use our protective stop of $3.38 Elron Electronics (OTC:ELRNF.PK): No stop HOLD for 24 months Free Trades: CNH Global NV (NYSE:CNH) iShares Silver Trust (NYSEArca:SLV) ABB Ltd. (NYSE:ABB): February 11, 2009, and October 15, 2008, positions SPDR Gold Shares (NYSEArca:GLD) Best regards for great investing,

Keith

Secret Government Silver Causes Frenzy!

Crushing silver dollar demand creates Golden Gate opportunity and now you can take advantage for as little as $129.

Welcome. Manage your account

4 of 6

1/9/2014 8:21 AM

Where to Invest in V olatile Markets Money Map Press

http://moneymappress.com/2011/10/04/where-to-invest-in-volatile-markets/

Current Subscriptions
Money Map Report

Recommended Subscriptions
Newsletters
Energy Advantage Nova-X Report Private Briefing

Trading Services
Capital Wave Forecast Energy Inner Circle Permanent Wealth Investor Radical Technology Profits Real Asset Returns Shah Gilani's DealBook Small-Cap Rocket Alert Strike Force The Geiger Index

Elite Membership
Micro Energy Trader Money Map Lifetime Money Map Project Passport Fellowship

Money Map Press | Money Map Report | Money Morning | Trading Services | The Investor's Toolbox | Brokerage Firms | Search

2014 - Money Map Press 16 W. Madison St. | Baltimore, MD, 21201 USA Toll-free 888.384.8339 | International +1.410.226.2069 | Fax 1.410.622.3050 Site Map | Privacy Policy |

5 of 6

1/9/2014 8:21 AM

Where to Invest in V olatile Markets Money Map Press

http://moneymappress.com/2011/10/04/where-to-invest-in-volatile-markets/

Disclaimer

6 of 6

1/9/2014 8:21 AM