The “Bear”-er of Bad News
"A very nasty period is soon to be upon us — be prepared."
—Bob Janjuah, Royal Bank of Scotland credit strategist
When one of the world’s premiere banking institutions, The Royal Bank of Scotland (RBS), comes right out and advises clients to brace for a full-fledged crash in global stock and credit markets during the next three months, you had better heed their warning.
A recent article in the Telegraph.co.uk provided highlights of a report by RBS strategists who proclaimed that inflation would likely continue paralyzing the world’s major central banks.
The report by the bank’s research team also warned that the S&P 500 index was likely to fall by more than 300 points to around 1,050 by September as "all the chickens come home to roost" from the excesses of the global boom.
And you thought that I was bearish!
Still, one look at the S&P 500 in the chart below and you can see why the pessimism is, in fact, justified.
Exorbitantly high oil and gasoline prices are worrying everyone, not just here at home but around the globe. Fear — and in some cases downright panic — is about to set in regarding corporate earnings and the potential lack of visibility going into the second half of 2008.
Now, I am not saying we are going to see a straight line downward in equities, but I do think we are in for summer doldrums in stocks akin to what we witnessed in the first quarter of this year.
The question now, for investors, is what to do about it?
I had a listener to my radio show call in last week thanking me for getting him to sell his Bank of America (BAC) stock back in January. He listened, processed the information, and then took action to save a bundle of money. He told me he would never have sold the stock without a push from me.
This made me feel great. I have been warning people to stay away from the beleaguered financial sector for some time. And while I’m still warning everyone to keep away from financials, it’s not just financials that need to be avoided.
Right now, you should be raising the level of cash in your portfolio by getting out of risky equity positions. I would not be holding equity exposure above 30% right now. Your cash position, or safe harbor investment, should be in excess of 50%.
Treasury bonds are one good way to fight off the specter of continued inflation, and fortunately there are a number of great exchange-traded fund (ETF) options that allow you exposure to Treasury bonds with a variety of maturities.
The table below provides a list of various bond ETFs that could be a good place to wait out this market storm.
Right now, subscribers to my High Monthly Income advisory service are allocated to two of these bond funds, and we’ve been outperforming the equity markets in both for all of 2008.
If your primary goal with your portfolio is income generation, then you owe it to yourself to check out my High Monthly Income service. For more on how you can protect your retirement assets in this volatile market environment, click here.
Jim Woods is a 30-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor.
His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. Read more about Jim Woods.
