Monday , 17 June 2024

5 Essential Strategies for Prospering in Today's Markets

[I have identified] five “Great Deceptions” lurking out there that, individually and collectively, have the potential to wreck your portfolio. [That being said,] I also have five protective strategies to help you avoid getting slammed. Words: 998

So says Mike Larson ( in edited excerpts from the original article* which Lorimer Wilson, editor of (Your Key to Making Money!), has further edited below for length and clarity – see Editor’s Note at the bottom of the page. (This paragraph must be included in any article re-posting to avoid copyright infringement.)

Larson goes on to say, in part:

Today’s Five Dangerous Great Deceptions

1. The economy is on a roll. I believe the truth is that the recovery is sorely lacking!

December consumer spending was unchanged. January consumer confidence fell to 61.1 from 64.8, while a key manufacturing index for the Chicago area slumped to 60.2. Sure, we’ve seen a slight uptick in certain sectors … but nothing like what you’d expect if growth were coming back strongly.

2. The job market is roaring back. The truth is that we’re not gaining much ground.

If you include discouraged workers, part-time workers who want full-time work, and so on, you see that the real unemployment rate is way up around 22 percent! Meanwhile, only 63.7 percent of Americans are active in the labor force. That’s the worst “participation rate” going all the way back to 1982, showing just how widespread the labor market malaise is.

3. The housing market is recovering strongly. The truth is we don’t have much progress to report.

November house prices were DOWN 3.7 percent from a year ago. December pending sales of used homes were DOWN 3.5 percent. December new home sales were DOWN 2.2 percent on the month, while full-year 2011 sales were the worst in U.S. history and existing home sales for January missed analysts’ forecasts. Worst of all, a key index that measures purchase mortgage application activity just slumped to lows last seen in October and September. Those readings, in turn, were the worst since 1996! Purchase apps are a forward-looking indicator, and this deterioration suggests buying demand is once again falling … right as we head into the crucial heart of the spring home buying season!

4. The idea that the U.S. debt load is NOT a major threat. I believe the cold, hard facts say otherwise.

Case in point: The Congressional Budget Office (CBO) just raised its 2012 deficit forecast to $1.1 trillion — making this the fourth year in a row we’ll rack up more than a trillion dollars in red ink. The total federal debt is now on track to hit $21.6 trillion in 2022, compared to around $15.2 trillion now. [Even] worse, the cost of carrying all that debt is on the rise. The CBO forecasts that our net interest burden, the annual cost of servicing the debts we’ve already accumulated, will almost triple to $624 billion per year! Think about that: we’re going to be spending more than $600 billion on interest to domestic and foreign creditors rather than actually doing something useful with the money. What a waste!

5. European officials are truly “solving” the European debt crisis. I can’t believe some pundits are still trying to toe that party line after all we’ve seen and heard over the past year or two.

Sure, the powers-that-be announced yet another Greek bailout deal after marathon weekend negotiations but the deal requires average Greeks to make huge financial sacrifices just to make life easier for foreign creditors and banks. Even if, by some miracle, Greece manages to hit every single one of the financial targets spelled out in the deal, the country will STILL be left with too much debt 10 years down the road. That makes default all but inevitable!

Why No Market Impact Yet?

Despite all these deceptions, stocks are generally rising on anemic volume, gold and oil are generally climbing and bond prices are generally rising. So what gives? Simple. QE!

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QE is shorthand for quantitative easing, which itself is just Wall Street jargon for central bank money printing. Take the European Central Bank. It talks a big game about inflation fighting but its balance sheet has exploded to 2.7 trillion euros from 1.9 trillion euros in only half a year! That’s an increase the likes of which we haven’t seen since the depths of the 2008 credit crisis.

Here in the U.S., the Federal Reserve recently said it would keep its Operation Twist scheme going into 2012. Policymakers also pledged to keep short-term rates low through late 2014, instead of the old target of 2013. The move was dubbed “QE 2.5” by the well-known Pimco bond fund guru, Bill Gross.

Meanwhile, the Bank of England just boosted its “QE-UK” program by another 50 billion British pounds to 325 billion pounds. The Bank of Japan just increased the size of its “QE-J” program by another 10 trillion yen to 65 trillion yen. It’s a massive, worldwide printing party, and it’s inflating asset prices across the board.

Five Protective Strategies

[Below are five] essential strategies to implement to protect yourself — and profit — in this market environment.

1. Maintain hedges against downside risk. This is a market where you need to have some protection in place, in the form of inverse ETFs or cheap long-term put options, because the negative fundamentals could overwhelm the impact of global money printing at any time.

2. Invest in select stocks and sectors that can hold their own in “down” markets, and really outperform in QE-driven “up” ones.

3. Seek higher yields from lower-risk segments of the fixed income market. I like some of the Master Limited Partnerships and short-term corporate debt.

4. Find cheap, unloved assets that you can actually buy and hold because the downside risk has largely been wrung out. Natural gas certainly qualifies in my book!

5. Be ready to shift on a dime when the money printing wave shows signs of receding. Back when we got QE2 here in the U.S., stocks racked up steady gains for eight months … then promptly puked them all up in just two WEEKS when the printfest came to an end. Something very similar will likely happen again.


Editor’s Note: The above article has been has edited ([ ]), abridged (…) and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.

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