Investors: Five Savvy Ways To Conquer The Wall of Worry (GLD, SLV, AMJ, USO, VGK)

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February 23, 2012 2:15pm NYSE:AMJ NYSE:GLD

Keith Fitz-Gerald:  If you like extreme risk and consider living on the edge to be “normal,” today’s column isn’t for you. Today I’m writing to the millions of investors who are completely terrified by the prospect of what’s next and who simply want their  faith restored – not to  mention their investments.


To all of them I would say: You are not alone and you’re not wrong to be apprehensive.

Our political situation is an embarrassing train wreck, our national debt looks like a one way trip to financial hell, housing remains in the dungeon, unemployment is unacceptably high and Europe…oh Europe (NYSEArca:VGK).

It’s nothing short of a gigantic wall of worry.

Plus, there have been so many attempts to “fix” things that I’ve lost count. Throwing good money after bad is a fool’s game and one that will have very real and inevitable consequences.

So what should investors do?

The Fed’s War on Capitalism

Here’s how I see things. The “Whitewash Ministry” has  basically five options:

  1. Repression
  2. Devaluation
  3. Austerity
  4. Deflation
  5. Inflation

You can forget the double “d’s” – devaluation and deflation.

Even though both would be the proper way for free markets to bleed out the excesses of the past, they are essentially political nukes and nobody has the willpower to touch either one of them.

The third, austerity, is being tried but only halfheartedly. Our leaders have no idea what this  actually means. Since they remain completely unaccountable, there is no true  incentive.

Besides, large numbers of people have figured out it’s easier to be on the dole than it is to actually work, so this is another disincentive for meaningful cuts in spending.

As for inflation, this too is officially a non-starter as  long as interest rates are held near zero. Unofficially, it’s a different story. Most investors I know are feeling the heat of 12% to 15% a year in their wallets.

That leaves option number one – repression.

You can call it what you want, but repression is really a fancy way of saying that our government is conducting punitive monetary policy.

While they mouth off about how they want to create jobs and  take care of the middle class, in reality they’re eviscerating it.

How?

By keeping interest rates low, the Fed is forcing people to  move their money into riskier assets or else watch them be inflated away.

This isn’t a war on the wealthy….

It’s a war on capitalism conducted by a small group of elitists in both parties who believe they know what’s best for the rest of us.

Academically, this is great stuff, which is why the bailouts and stimulus programs are so popular with our leaders – almost none of whom have actual experience with real money, much less understand how the financial system actually works.

By playing with interest rates, the government hopes to effectively redistribute the wealth of prudent savers onto its balance sheets while engendering an asset inflation that ultimately bails out the profligate spending.

In reality, there is different story going on.

The average investor is being crushed by short-term market gyrations and has been essentially cut off from funding that should otherwise be moving through the system like greased lightning.

Personally, I am very troubled by the fact that my government has run up $15 trillion in debt through an irresponsible monetary policy and now dares to presume it knows how to invest my money better than I do.

I am flabbergasted that what used to be the safest  securities in the world – U.S. Treasuries – are now the world’s riskiest. And that the now safest securities aren’t really securities at all – gold (NYSEArca:GLD), silver (NYSEarca:SLV), and other commodities.

Wall of Worry Investing

But this is the hand we have been dealt, so we might as well make the most of it. Scratch that – we might as well get even.  Here are five things you can do right now:

  1. Buy stocks with characteristics like bonds: Right now the best examples include Master Limited Partnerships (MLPs), particularly those that are energy related. Not only are many of them poised to profit from rising oil prices, but the high, stable income stream many of them pay lends stability in volatile  markets. The same is true of many food, water and technology companies.
  2. Keep bond duration short: Stick to shorter-term maturities with duration under five  years if you’re buying bonds directly. If you own bond funds or ETFs, check to see that the duration is on the shorter end of the spectrum. When interest rates ultimately rise, shorter duration holdings will shield your money from  potentially catastrophic drops as longer bonds take an epic gut shot.
  3. Stick to “glocals” with fortress-like balance sheets: The idea here is very simple  -diversify your holdings and future growth away from U.S. and EU legacy debt  that will hobble the established markets for years to come. What you are  looking for is companies serving the “rising billion.” That’s the group formerly known as the “bottom billion,” or the poorest of the poor who are finally engaged in global growth. Think India, China, Malaysia and Vietnam here. Even the Middle East will fit the bill in a few years.
  4. Buy  metals and commodities: It’s not too late. “Everybody” expects these to go down; that’s usually a bullish influence under normal circumstances, but even  more so as paper currencies fail. And make no mistake about it, paper money is failing.
  5. Prepare for an age of abundance: I’ve said it before and I’ll say it again – the  greatest wealth is always created from the ashes of chaos. This time will be no  different. If you are not in the game you’ll miss 100% of the investment  opportunities the current financial crisis creates.

The point is, scaredy-cat investors have options in today’s markets-even though that wall of worry is looking pretty high these days.

 ETFDN Related ETFs: JP Morgan Alerian Mlp Index ETN (NYSEArca:AMJ), U.S. Oil Fund (NYSEArca:USO), iShares Silver Trust (NYSEArca:SLV), SPDR Gold Trust (NYSEarca:GLD).

Written By Keith Fitz-Gerald From Money Morning

Keith Fitz-Gerald is the Chief Investment Strategist for Money Map Press,  as well as Money Morning with over 500,000 daily readers in 30 countries. He is one of the  world’s leading experts on global investing, particularly when it comes  to Asia’s emergence as a global  powerhouse. Fitz-Gerald’s specialized  investment research services, The Money Map Report and the New China Trader, lead the way in financial analysis and investing recommendations for the new economy. Fitz-Gerald is a former professional trade advisor and licensed CTA who advised institutions and qualified individuals on   global futures trading and hedging. He is a Fellow of the Kenos Circle,  a think tank based in Vienna, Austria, dedicated to the identification of economic and financial trends using the science of complexity. He’s also a regular guest on Fox Business. Fitz-Gerald  splits his time  between the United States and Japan with his wife and two children and regularly travels the world in search of investment opportunities others don’t yet see or understand.


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