Mike Conlon
Senior Instructor
instructor@mywealth.com
Are you a Bull or are you a Bear? Optimist or Pessimist? Let’s face it there is a lot of debate over the economy and the stock market right now and I’ve written recently about both sides of the coin. At the end of the day, what it comes down to is this: do you believe that the actions our government (and others around the world) has taken will prevent us from falling back into recession or even a depression?
Right now, it can be argued that the world markets for stocks, bonds, commodities, and currencies are trading on the Macros and that it essentially boils down to two trades. Inflation and Recovery vs. Deflation and Recession. At this point, it doesn’t make sense to invest for the long-term in individual stocks or bonds or commodities as even the best stock in the world will go down if we move deeper into recession. So what should one do?
*****Question of the Week! *****
(Take a shot!!….Chance to Win a FREE Investing 101 Course(VALUE: $99.00!!) by Emailing Us your answer no later than Friday 9AM EST and 3 Names will be randomly picked and named as Winners!! (Must be a blog subscriber) The economy has definitely improved in the last couple of months and although we are not technically out of the current recession, many people feel that we will have a double dip recession. Do you feel that there will be a double dip recession? a) No, because we are not coming out of the current recession b) no, there will be no double dip recession c) yes, there will be a double dip recession
There are 3 basic ways to approach the current market situation depending upon which camp you are in:
If you are in the inflation/recovery camp, you should: Buy stocks and commodities. As long as interest rates stay low and the economy begins to recover, commodities (particularly gold, silver and oil) should benefit as investors look to invest in hard assets to diversify away from the dollar. If interest rates stay low, then you would also want to sell the US dollar (USD) and the Japanese Yen (JPY) and buy commodity currencies such the Aussie (AUD), the Canadian dollar (CAD), and the Kiwi (NZD) as they will benefit from higher commodity prices and the carry trade. This trade should work out pretty well until peak inflation is upon us and the FED has to start raising interest rates.
If you are in the deflation/recession camp, you should: Basically do the opposite of the inflation hawks. You would want to sell stocks and commodities, and buy the US dollar (USD) and the Japanese Yen (JPY) as the flight to safety trade would be in full effect. This is also the time that you want to own bonds as bonds do well when stocks go down.
If you are unsure of which way the market will go, you should: diversify among asset classes. An easy way to do this is with an equal mix of stocks and bonds, as well as having exposure to different currencies. This would be considered a hedged situation and the safest way to approach the current market climate. While you may not make the “home run gains” that you might if you guessed correctly which way the economy was going, your portfolio will be less volatile as you can participate in either scenario.
This is just a somewhat simplistic way to view the current economic climate but what’s important to know is how the different asset classes perform under different economic conditions. One great way to participate in the “global macro” trade is through the use of ETFs.
Regardless of which way you decide to play, be sure to use proven risk management techniques to limit your losses and maximize your gains.
To learn more about how to manage risk effectively in the global economy, be sure to check out our currency and ETF trading courses.
