Stocks had doubled from the 2009 crisis-induced lows. Manufacturing had shown signs of recovery. Commodity prices were soaring. Inflation was ticking higher here in the U.S. and abroad. And central banks were all talking about “normalizing” interest rates — i.e. reversing the emergency measures they had rolled out in response to the global financial crisis and recession.
They also admitted that the key fundamentals, like jobs and consumer spending, weren’t confirming the recovery. But they explained it away, saying these components were just lagging.
Even when the devastating disasters hit Japan — a very important piece of the global economy — they managed to dismiss the still open-ended nuclear crisis. And they touted the fabulous growth contribution that would come from rebuilding after the earthquake and tsunami.
What about Europe?
The European monetary union (EMU) had all of its flaws exposed in the global financial crisis. It was obvious that the critical deficit and debt limits set forth to govern the fiscal conformity of euro-zone countries — the rules that made the common currency concept valid — were completely disregarded and unattainable for several members.
|The rules behind the common currency are falling apart at the seams.|
As such the borrowing rates for PIGS countries finally began to reflect reality in early 2010, giving a clear signal that the gig was up in Europe. There was no solution for dealing with fiscal recklessness within the EMU. The weak countries couldn’t remain solvent if left to borrow at realistic market rates. Default and contagion were inevitable. And a break-up of the euro, the second most widely held currency in the world, was quite possible.
Global financial and political leaders assured everyone that Europe’s problems were contained, yet hedged themselves by adding “unless there is an exogenous shock in the global economy” to their forecasts.
Unfortunately, based on history, financial crises tend to produce economic shocks with surprising frequency. And given that the situation in Europe has proven to be unsolvable and on an inevitable path toward sovereign debt defaults, an “exogenous shock” happens to be a high probability event.
Yet, the likes of global central bankers, the IMF and Wall Street conveniently chose not to include it in their forecasts — the same forecasts that tend to give investors like you the courage to keep your money passively invested, to invest more and to confidently spend again.
That means following this so-called leadership’s guidance ends up hurting the consumer — the average Joe — again, in a seemingly perpetual cycle.
And on top of that, while they were trying to convince us to be active participants in the recovery, they chose not to eat their own cooking!
The corporations didn’t hire,
The banks didn’t lend,
And the banks and government did nothing to help workout the debilitating housing crisis — one that will continue to saddle consumers, absent any solutions, indefinitely.
So now it’s become increasingly accepted that robust recovery isn’t underway. Rather another global financial crisis is looming! And it’s time to take matters into your own hands — to protect your hard-earned wealth and potentially profit.
|The jobs we were promised never arrived.|
For Protection: Build up Your Cash!
We’re experiencing a balance sheet crisis. And it’s left consumers, companies and governments trying to climb their way out of a hole of debt.
Raising cash can help you avoid exposure to the destructive events likely in store for financial markets.
Plus, while a potential inflationary spiral has received the most attention, another global financial crisis could send the world back into deflation-mode. For instance, if the speculation-led rise in commodities reverses under the weight of another global economic downturn, expect the warnings about inflation to flip.
|In a deflationary environment cash is king!|
For Profit: Go the Short Side
The events unfolding in Europe and the global economy represent a lot of risk. But only if you’re on the wrong side! Positioned correctly, they represent opportunity.
So what is the correct position in this environment? The same as it would be in any investment environment …
You should always be positioned so the expected return more than compensates you for the risk taken.
And in my opinion, the best reward-to-risk profile in this environment is on the short side.
I expect the two markets that led the bounce in global risk appetite from the depths of uncertainty … to be the leaders on the way down. Those markets: The S&P 500 and the euro.
You can look to hedge your portfolio against a loss or make a trade to capitalize on a decline through inverse ETFs.
For example, the ProShares Short S&P 500 (NYSE:SH) is meant to give you a 1 percent gain for every 1 percent decline in the S&P 500. And the ProShares UltraShort Euro (NYSE:EUO) aims to return 2 percent for every 1 percent decline in the value of the euro.
Both of these inverse ETFs can be purchased in your normal brokerage account, just like any stock.
Related Tickers: Direxion Daily Small Cap Bear 3X Shares (NYSE:TZA), ProShares UltraShort Dow30 (NYSE:DXD), Direxion Daily Financial Bear 3X Shares (NYSE:FAZ), iPath S&P 500 VIX Short-Term Futures ETN (NYSE:VXX), ProShares UltraShort S&P500 (NYSE:SDS), ProShares Ultra S&P500 ETF (NYSE:SSO), ProShares UltraShort QQQ ETF (NYSE:QID).
Also, consider my World Currency Trader service. This is where I give members more extensive analysis and precise easy-to-follow instructions on how to use three revolutionary currency instruments to preserve your wealth and profit in any economic environment.
Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, Michael Larson and Bryan Rich. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.
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