Download Financial Crisis "Round Two" Survival Guide

1
FinancialCrisis
"RoundTwo"
SurvivalGuide
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FinancialCrisis"RoundTwo"
SurvivalGuide
Manyinvestorsbelievethatthe2008Crisiswas
THECrisisoftheirlifetimes.
Theyaremistaken.
The2008Crisiswasastockandinvestmentbank
crisis.ButitwasnotTHECrisis.Itwasjust
RoundOne.
RoundTwo,orTHECrisis,concernsthebiggest
bubbleinfinancialhistory:theepicBond
bubble…which,asitstands,isnorthof$100
trillion.
Toputthisintoperspective,theTechBubblewas
about$8trillioninsize.TheHousingBubble,
whichtriggeredthe2008Crisis,wasabout$14
trillioninsize.
Thebondbubbletodayisover$100trillion.And
ifyouincludederivativesthattradebasedonthe
pricesofbonds,it’s$555trillion.
Sowearetalkingaboutaproblemthatis
exponentiallylargerthananythingyouorI
haveseenbefore.
Howisthispossible?
Bywayofexplanation,let’sconsiderhowthe
currentmonetarysystemworks…
Thecurrentglobalmonetarysystemisbasedon
debt.Governmentsissuesovereignbonds,which
aselectgroupoflargebanksandfinancial
institutions(e.g.thePrimaryDealersintheUS)
buy/sell/andcontrolviaauctions.
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In This Report
• AnexplanationoftheREAL
Crisisandwhatitwilllook
like.
• Thefirstsignthatthenext
roundoftheCrisishasalready
begun.
• Threestrategiestoprotect
yourwealthfromthisCrisis.
• Howtotakeout“catastrophe
insurance”onyourportfolio
(ifyouhavetostayinvestedin
stocks).
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Thesefinancialinstitutionslistthebondsontheirbalancesheetsas“assets,”indeed,the
senior-mostassetsthatthebanksown.
Thebanksthenissuetheirowndebt-basedmoneyviainter-bankloans,mortgages,credit
cards,autoloans,andthelikeintothesystem.Thus,“money”enterstheeconomythroughloans
ordebt.Inthissense,moneyisnotactuallycapitalbutlegaldebtcontracts.
Becauseofthis,thesystemisinherentlyleveraged(usesborrowedmoney).
Considerthefollowing:
1) Totalcurrency(actualcashintheformofbillsandcoins)intheUSfinancialsystemisa
littleover$1.2trillion.
2) Ifyouwanttoincludemoneysittinginshort-termaccountsandlong-termaccountsthe
amountof“Money”inthesystemisabout$10trillion.
3) Incontrast,theUSbondmarketiswellover$38trillion.
4) Ifyouincludederivativesbasedonthesebonds,theUSfinancialsystemisnorthof$191
trillion.
Bearinmind,thisisjustfortheUS.
Indeed,globallythereroughly$199trillioninbondsinexistence.
AlittleoverathirdofthisisintheUS.Abouthalfcomesfromdevelopednationsoutsideofthe
US(Germany,Japan,etc.).Andfinally,emergingmarketsmakeuptheremaining14%.
Thesizeofthebondbubblealoneshouldbeenoughtogivepause.
However,whenyouconsiderthatthesebondsarepledgedascollateralforother
securities(usuallyover-the-counterderivatives),thefullimpactofthebondbubble
explodeshigherto$555TRILLION.
Toputthisintoperspective,theCreditDefaultSwap(CDS)marketthatnearlytookdownthe
financialsystemin2008wasonlyatenthofthis($50-$60trillion).
Moreover,youhavetoconsiderthepoliticalsignificanceofthisbubble.
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For30+years,WesternGovernmentshavebeenpaperingoverthedeclineinlivingstandards
byissuingdebt.Initssimplestrendering,sovereignnationsspentmorethantheycouldcollect
intaxes,sotheyissueddebt(borrowedmoney)tofundtheirvariouswelfareschemes.
Thiswasusuallysoldasa“temporary”issue.Butaspoliticianshaveshownustimeandagain,
overspendingisneveratemporaryissue.Thisiscompoundedbythefactthatthepolitical
processlargelyconsistsofpromisingvarioussocialspendingprograms/entitlementsto
incentivizevoters.
IntheUStoday,awhopping47%ofAmericanhouseholdsreceivesomekindofGovernment
benefit.Thistypeofsocialspendingisnottemporary…thisisendemic.
TheUSisnotalone…MostmajorWesternnationsarecompletelybankruptdueto
excessivesocialspending.AndALLofthisspendinghasbeenfueledbybonds.
ThisiswhyCentralBankshavedoneeverythingtheycantostopanyandalldefaultsfrom
occurringinthesovereignbondspace.Indeed,whenyouconsiderthebondbubbleeverything
CentralBankshavedonesince2008beginstomakesense.
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1) Centralbankscutinterestratestomakethesegargantuandebtsmoreserviceable.
2) Centralbankswant/targetinflationbecauseitmakesthedebtsmoreserviceableand
putsofftheinevitabledebtrestructuring.
3) Centralbanksareterrifiedofdebtdeflationbecauseitwouldburstthebondbubbleand
bankruptsovereignnations.
Sohowwillthebondbubbleplayout?
Thefirstrealsignoftroublehasalreadyemerged.ThatsignpertainstotheUSDollar.
TheblogosphereisrifewithtalkoftheendoftheDollar.Everywhereyoulook,thereistalkof
theDollardyingorbeingreplacedastheglobalreservecurrency.
TheDollarwillend,asallfiatcurrenciesdo,butnotuntilwereachtheEndGameofthecurrent
financialsystem.TheUSDollaristhereservecurrencyoftheworld.Almosteverythingonthe
planetispricedinDollars.TheUSDollaristhesinglemostliquidsecurityintheworld.And
almosteveryoneintheworldborrowsinUSDollars.
WhenyouborrowinUSDollarstoinvestinsomethingelse,youareeffectivelyshortingtheUS
Dollar.Forthisset-up,thelessvolatilitytheUSDollarhas,thelowertheriskofyourposition
blowingup(iftheUSDollarrallies,yourpotentialreturnserasevery,veryquickly).
Withthatinmind,between1999and2014theUSDollarwasinaconsolidationperiod.Itisno
coincidencethatitwasduringthisperiodthatwebegantoexperienceoneassetbubbleafter
anotherculminatinginthebondbubble.
Insimpleterms,astheDollar’svolatilityDECREASED,globalbondissuanceINCREASED.
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Asrecentlyastheyear2000,thebondbubblewasamere$30trillion.ButastheDollar
weakenedandbecamerangebound,theglobalbondmarketMORETHANTRIPLED
Indeed,investorsweresoexcitedabouttheUSDollar’slackofvolatilitythattheyborrowedan
additional$9trillioninUSDollarstoinvestintootherassetclasses.
Thisiscalledacarrytrade.Anditwasliterallythefusefortheglobaldebtbomb.Acarrytrade
onlyworksaslongasthecurrencyinwhichyouareborrowingremainsstableorweakens.As
soonasthatcurrencystrengthens,yourinvestmentblowsupveryquickly.
Whichispreciselywhathappenedinmid-2014.
InJune2014,theECBcutinterestratestonegativeintheEurozone.Whenthishappened,
everyonewhohadbeenborrowingUSdollarstoinvestinEuropebegantowatchtheirgains
evaporate.ThisforcedcapitaltoescapetheEUandmovebackintotheUSDollar.
Andthat’swhenthe$9+TRILLIONUSDollarcarrytradebegantoblowup.
Soonafterthis,theUSDollarmovedover4%inaSINGLEMONTH.Thatwasjustthebeginning.
WithinsixmonthstheUSDollarmovedover10%,then20%.
ThismovecoincidedwiththefirstwaveoftheriskiestbondsdenominatedinUSDollars(junk
bonds)blowingup.THETIMINGOFTHESETWOITEMSISNOTCOINCIDENTAL.
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Indeed,astheUSDollarrallybegantointensify,theemergingmarketspacegotcrushed.Most
commoditieslikeOilarepricedinUSDollars.IfyouinverttheUSDollar(meaningwhenit
strengthens,thechartlinefalls),you’llseethatOil,andcommoditiesingeneralgotwipedout
bytheUSDollarrally.
ThebelowchartshowsaninvertedUSDollar(meaningwhentheDollarstrengthens,theblack
linefalls),Oil(blueline),Brazilianstocks(redline),Russianstocks(greenline)and
commoditiesingeneral(pinkline).
Asyoucansee,theUSDollarrallypulleddownALLoftheseassetsalmosttick-for-tick.Since
thattimetheseassetshavebeenconsolidatingastheyprepareforthenextBIGmove.
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ThissituationwillonlybegettingworseastheUSDollarcarrytradecontinuestoblowupin
thecomingmonths.Remember,whenyouborrowinUSDollars,youareeffectivelyshortingUS
Dollars.Inthisscenario,whentheUSDollarrallies,yougetcrushedandareforcedtocover,
default,refinance,etc.
Alloftheseactions(repayyourdebt,default,orrefinancing)decreasethenumberofUS
Dollarsinthesystem.ThisinturnmakestheUSDollarrallymore.Andthusbeginstheend
gameforthefinancialsystem.
Indeed,thelong-termchartoftheUSDollarindicatesthatwecouldverywellseethelast30
yearsworthofleveragegetevisceratedinthecomingmonths.
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Thisisthesinglelargestchartformationinmodernfinancialhistory.Thisisa40+year
bullishfallingwedgepattern.Andtheupsidetargetis130orhigher.
Whatdoesthismean?
EverysingleinvestmentthatisbasedonacheapUSDollarwillbeblowingup.
Thiswillnothappenallatonce.Weareverylikelyenteringa5+yearUSDollarbullmarket.
However,givenwhatisatstakehere(thefinancialsystem)Centralbanksandthepoliticalelite
won’tletthishappenwithoutafight.
ThisiswhyIbelievethisprocesswilllikelytakemorethantwoyears.MuchliketheTech
Bubble,therewillbe20%crashesinassetprices(seetherecentcollapseofOiland
commodities),buttherewillalsoberalliesaswell.
Insimpleterms,the$199trillionbondbubblewillimplode.Asitdoes,thefinancial
systemwillbegintodeleverageasdebtisdefaultedonorrestructured(reducingthe
amountofUSDollarsinthesystem,pushingtheUSDollarhigher).
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9
Bythetimeit’sallover,Iexpect:
1) Numerousemergingmarketcountriestodefaultandmostemergingmarketstocksto
lose50%oftheirvalue.
2) TheEurotobreakbelowparitybeforetheEurozoneisbrokenup(eventuallysomenew
versionoftheEurotobeintroducedandremainbelowparitywiththeUSDollar).
3) Japantohavedefaultedandverylikelyenterhyperinflation.
4) USstockstoloseatleast50%oftheirvalueandpossiblyfallasfaras400ontheS&P
500.
5) Goldtobreakabove$2,000andlikelygoto$5,000(onlyafterCentralBanksunveilthe
“nuclear”roundofQEinresponsetothecrisis).
6) Numerous“bail-ins”inwhichdepositsarefrozenandusedtopropupinsolventbanks.
7) TheTooBigtoFailbankstoultimatelygobankruptandverylikelybebrokenup.
Thisisindeedsomescarystuff.However,fortunatelytherearesomeverybasicstrategiesyou
canemploytopreserveyourwealththroughthis.
Strategy#1:MoveIntoUSDollars
Perhapstheeasieststepyoucantakeistomoveaportionofyourcapitaloutofvariousrisk
assetsandintoUSDollars.
AsIexplainedearlier,weareenteringastageofglobaldeleveraging.Thiswillreducethe
amountofUSDollarsincirculation.BetweenthisandtheUSDollarcarrytradeblowingup,the
USDollarislikelyenteringamulti-yearbullmarket.
“Butwait,”yousay,“whatifyou’reearlyandthebubblehasn’tburstyet?Won’tImissouton
gainsifIsellstocksandmoveintotheUSDollar?”
TheUSDollaractuallyOUTPERFORMEDtheS&P500in2014.Youcouldhavesatonthe
sidelinesthewholeyearandseenagreaterincreaseinyouroverallpurchasingpowerthanif
you’dboughtanindexfund(whichmostinvestorscan’tbeatanyway).
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Thistrendhascontinuedin2015:theUSDollarhasdramaticallyoutperformedthestock
marketonceagain.
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DuringthelasttwoUSDollarbullmarkets,theUSDollarroseroughly50%.Duringthesame
timeperiods,stocksfellover20%.Ifweareinamulti-yearUSDollarbullmarketasIbelieve
weare,havingyourcapitalinUSDollarswillnotonlyreduceyourportfolioriskbutwill
actuallyGROWyourpurchasingpowermorerapidlythanifyouownedstocks!
Strategy#2:BuySomeBullion(bothGoldandSilver)
Anothereasywaytoprepareforthebondbubble’sburstingistomoveaportionofyourwealth
intoGoldorSilverbullion.Becausemanyinvestorsareunfamiliarwiththisassetclass,I’ve
arrangedthisstrategyinaQuestionandAnswerform.
Whatisbullion?
Bullionissimplyanothertermforactual,physicalGoldorSilverasopposedto“paper”Goldor
Silver,whichtradesviaeitherthefuturesmarketorinoneofthevariousGold-orSilver-based
ExchangeTradedFunds(ETFs).
Bullioncomesinoneoftwoforms:coinsorbars.CoinstypicallycontainanounceofpureGold
orSilver.Barsrangeinsizefromoneounceupto400+ounces.Youcanbuyeitherforasmall
premiumover“spot”priceorthecurrentmarketvalueofGoldorSilver.
Whatarethemostcommonformsofbullion?
Intermsofgoldcoins,therearethreecoinsthatcomprisethebulkofthebullionmarket.They
areKruggerands,CanadianMapleLeafs,andAmericanGoldEagles.WesuggestavoidingMaple
Leafsbecausetheycaneasilybescratchedwhichdamagesthegoldandreducesthecoin’s
value.
IntermsofSilvercoins,theeasiestwaytopurchasebullionisviapre-1965coins(oftentermed
“junk”silver).However,youcanalsogetsilverone-ouncerounds(coin-likemedallions)or
SilverEaglecoinswhichalsocontainoneounceofSilver.
Intermsofbars,youcanbuyeitherGoldorSilverbarsinavarietyforforms.However,theyare
muchbulkier,usuallyweighconsiderablymore,andarehardertomovearound.
WhyshouldIownbullion?
Historically,manyinvestorshavearguedthattherewasnopointtoowningbullionsinceit
didn’tproduceanycashflow.However,withthemajorityofGovernmentbondsnowyielding
lessthan1%andover$5trillionsportingnegativeyields,thisargumentisnolongervalid.
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Owningbullionisameansofsecuringyourwealthoutsideof“papermoney”orthecashthat
theCentralBankswanttotax.Providedyoustoreitsecurely,it’sameansofpreservingyour
capitalandkeepingitunderyourcontrol.
WhyshouldIownbullioninsteadofanExchangeTradedFund(ETF)thatownsbullion?
ThereisconsiderableevidencetosuggestthattheGoldandSilverETFsdonotactuallyhaveall
theGoldorSilvertheyclaimto.However,regardlessofwhetherthisiscompletelytrue,atthe
endofthedayitismuchsafertohaveyourownphysicalGoldorSilverinhandasopposedto
buyingapaper-basedETFrunbyabankorotherfinancialentitythatclaimsitownsGoldand
Silver.
Afterall,ifthefirmthatownstheGoldgoesbankrupt,there’snoguaranteethatyou’llgetyour
handsonyourshareofthebullionanytimesoon,ifatall.Thiscompletelydefeatsthepurpose
ofbuyingGoldorSilver:tostoreyourwealthsafely.
HowmuchGoldorSilverbullionshouldIbuy?
Howmuchyoupurchaseisuptoyou.Wesuggesthavingatleastseveralmonths’worthof
expensesinGoldandSilverbullion.Someinvestinglegendshaveasmuchas20%oftheir
portfoliosinbullion.
WhyshouldIbuybothGoldandSilver?
Becauseifabankholidayiseverdeclared…orifpapermoneyisworthless,youdon’twantto
bewalkingaroundwithanounceofgold(worth$1k+)tobuygroceries.
Instead,youwillwantsomepreciousmetalsofsmallerdenominationtopurchasegoodsor
barterwith,hencetheneedforsomeSilver.
HowdoIbuyGoldorSilverbullion?
Thesafestwaytobuybullionisfromadealer.Thereareliterallyhundredsofdealerstochoose
from.TheUSmintprovidesalistofauthorizedcoindealersonitswebsite:
http://www.usmint.gov/mint_programs/american_eagles/?action=lookup
Wecannottellyouwhichdealertogowith,butlookforsomeonewho’sbeendealingforyears
(notanewbie).YoushouldALWAYSaskforreferencesfromthedealer(formerclientsyoucan
talktoabouttheirpurchases/experiences).
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Besuretotalktothedealerforsometimeandaskhimorhernumerousquestionsaboutthe
industry,differenttypesofcoins,etc.(feelfreetotesthimorherontheinformationwe’ve
providedyouwithabovee.g.thethreemostliquidGoldcoins,etc.).
Iftheycananswereverythingyouaskinaknowledgeablefashion,theirreferencescheckout,
andyouverifyeverythingtheysaywitha3rdparty,youshouldbeOK.
Somewarningsignstoavoidaredealerswhotrytostoreyourbullion.Never,everstoreyour
bullionwithsomeoneelse.Alwaysstoreityourself.
HowshouldIstoremybullion?
Intermsofstoringyourbullion,youcanstoreitinasafedepositboxatabankorbuyahome
safefromTargetorWal-Mart(oraspecificsafestore).Personally,Idistrustsafedepositboxes
becausepartofthereasonforhavingGoldorSilveronhandisincasethere’sarunonthe
banksorabankholidayisdeclared.Forthatreason,Isuggesthavingatleastsomebullionina
personalsafe.
Youcangetadecentsafeforanywherebetween$100and$1,000.BothTargetandWal-Mart
selldecentmodelsfor$50-$300.However,thereareplentyofothermoresophisticatedsafes
outthere.
OnasidenoteDONOTtellpeopleaboutyourbullionstashORyoursafe.TrustvirtuallyNO
ONEwiththisinformationexceptyourclosestlovedones(andwemeanCLOSEST).
IfIbuybullionandthecrisisdoesn’thitsoon…won’tImissoutonstocks’gains?
No.CNBCwillnevertellyouthis,butthefactofthematteristhatGoldhasdramatically
outperformedthestockmarketforthebetterpartof40years.
Isay40yearsbecausethereisnopointcomparingGoldtostocksduringperiodsinwhichGold
waspeggedtoworldcurrencies.MostoftheanalysisIseecomparingthebenefitsofowning
Goldtostocksgoesbacktotheearly20thcentury.
HoweverGoldwaspeggedtoglobalcurrenciesupuntil1967.Stocksweren’t.Comparingthe
twoduringthistimeperiodisjustbadanalysis.
OncetheGoldpegofficiallyendedwithFrancedroppingitin1967,thepreciousmetalhas
outperformedboththeDowandtheS&P500byamassivemargin.
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Seeforyourself…thebelowchartisinnormalizedtermscourtesyofBillKing’sTheKingReport.
AccordingtoKing,Goldhasrisen37.43foldsince1967.Thatismorethantwicethe
performanceoftheDowoverthesametimeperiod(18.45fold).Somuchfortheclaimthatstocks
areabetterinvestmentthanGoldlong-term.
Indeed,onceGoldwasnolongerpeggedtoworldcurrenciestherewasonlyasingleperiodin
whichstocksoutperformedthepreciousmetal.Thatperiodwasfrom1997-2000duringthe
heightoftheTechBubble(thesinglebiggeststockmarketbubbleinover100years).
Insimpleterms,asalong-terminvestment,Goldhasbeenbetterthanstocksforover40years.
SoowningGoldbullion,likeUSDollars,willnotonlyshelteryourcapitalfromsystemicrisk,but
willactuallyGROWyourpurchasingpowermorerapidly!
Strategy#3:IfYouMustOwnStocks,MoveIntoHigh
QualityCompanies
IfyouDOhavetostayinvestedinstocks,youshouldshiftintoHighQuality,BlueChip
companies.
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Thereasonsforthisareasfollows:
1) HighQuality,BlueChipstockswillfalllessthansmaller,riskiercompanieswhenthe
Crisishits.
2) HighQuality,BlueChipcompanieshavemorestableprofitsandsowillbeabletopay
outdividendsduringmarketdownturns.
3) HighQuality,BlueChipcompaniesareactuallyevenMOREattractivewhentheirprices
fall.
ConsiderCoca-Cola(NYSE:KO)asanexample.
KOisoneofthebest,mostprofitablebrandsintheworld.Thecompetitivemoataroundthis
businessisextraordinaryanditremainsoneofthemosteasilyrecognizedfranchisesonthe
planet.YoucandrinksixglassesofCokeadayandstillenjoyitthenextday.Thatqualityis
almostnowheretobefoundinanyotherfood/beverageontheplanet:evenchocolatewould
getoldaftersixbarsaday.
Thequalityofthisbusinessshoneduringthe2008Crisis,whenKO’sstockonlyfell24%
comparedtotheS&P500’sdropof36%andtheRussell2000’sdropof30%.
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NotonlydidKOactuallygrowprofitsduringayearinwhichtheglobaleconomyimploded,but
itactuallyincreaseditsdividend.Sothoseinvestorwhoheldthroughoutthecrisiswere
actuallypaidtowait.
Moreover,whenKO’sstockfellitbecameevenmoreattractiveasaninvestment.
Letmeexplain.
Volatilitycaneitherhurtyouorbeyourfriend.Mostpeoplewouldsellapositionifitfell2030%.Thisiswiseifyou’reinvestingbasedonmomentum.However,ifyou’reinvestingbased
onvalue,thendoingthisiscompletelyantitheticaltoattaininghighreturns.
ConsiderCoke.Let’ssayCoke’ssharepricecollapsed50%from$40to$20pershare.Most
investorswouldpanicandsell.Avalueinvestor,ontheotherhand,wouldbebuyinggreedily.
Why?
BecauseCoke’sbusinesshasafundamentalvalue.EvenduringaFinancialCrisisand
Depression,peoplewillcontinuetodrinksoda.
SotheopportunitytobuyCokeat$20asharewouldbetrulyanextraordinaryopportunity.
Indeed,fromanincomeperspectivealone,theinvestmentpotentialherewouldbefantastic.
Considerthatin2008wheneveryonethoughttheworldwasending,Cokepaidout$0.76in
dividends.Withsharesat$20,thismeantadividendyieldof3.8%,whichisaveryreasonable
return.
However,let’ssayyouwerewiseenoughtorecognizethatCokeofferedevenMOREvalueat
$18andaddedtoyourpositioninCokewhenitssharesfellto$18.
Ifyoudidthis,andheldontoyourposition,youwouldcurrentlybelockinginamassiveyield.
In2014,KOpaidout$1.22pershareindividends.Basedonyourbuypriceof$18pershare,
youwouldbecollectingamassivereturnof6.7%peryear($1.22/$18.00=6.7%)from
yourinvestment.
LikeIsaidbefore,HighQualityBlueChipcompanieslikeCokeareevenMOREattractivewhen
theirsharepricesfall.
So,ifyouHAVEtoremaininvestedinstockstothelongsideforwhateverreason,nowisthe
timetobemovingintohighqualitycompanies.Thismeansfindingcompanieswithlowdebt,
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lotsofcash,strongresults(KOactuallyGREWrevenuesin2008),andsignificantcompetitive
advantages.
Also,andthisiscritical,lookforcompanieswithstrongbalancesheets:companiesthatwillstill
EXISTifthere’sanotherCrisis.Depressionorno,peoplewillstilldrinksoda,alcohol,smoke
cigarettes,andneedmedicine.I’vecompiledalistofcompaniesyoushouldconsiderifyouneed
toremaininvolvedinstocksgoingforward:
Company
Symbol
Sector
Coca-Cola
KO
Beverages
Budweiser
BUD
Alcohol
Johnson&Johnson
JNJ
Healthcare
Wal-Mart
WMT
GeneralRetail
ExxonMobil
XOM
Oil&Gas
KraftHeinz
KHC
FoodandBeverages
Microsoft
MSFT
Software
Pfizer
PFE
Pharmaceuticals
Intel
INTC
Microchips
Procter&Gamble
PG
ConsumerGoods
IwanttostressthattheseinvestmentsareonlyifyouHAVEtostayinstocksforsomereason.If
thereisanothercollapsethesecompanieswillfalllikeeverythingelse.However,theywilllikely
falllessthantherestofthemarket.
Strategy#4:CatastropheInsurance:TradesForWhenthe
CollapseHits
Thisfinalstrategyisnotwithoutrisk.Youshouldonlyconsidertheinvestmentsdetailedhere
ifyouareanactivetrader(someonewhoknowshowtoreadmarketmovementsonaweekby
weekbasis).
ThereasonforthisisthatshouldtheCrisisgosystemicandbegintotakedownlargebanks,you
couldverywellloseallofthecapitalyouputintothesetrades(moreonthislater).
Havingsaidthat,thereareanumberofwaysyoucanprofitfromthemarketsfalling.
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Theyinclude:
1) Buyingputs(optionsthatprofitwhenthemarketfalls).
2) Shortingfutures
3) BuyingUltraShortETFs
Ofthesethree,UltraShortETFsarethemostaccessibletoordinaryinvestors.
Ifyou’reunfamiliarwithUltraShortETFs,theseareinvestmentsthatreturntwotimesthe
inverseperformanceofaparticularETF.ConsidertheUltraShortFinancialsETF(SKF)asan
example.
SKFreturnstwotimestheinverseoftheFinancialsETF(IYF).SoifIYFfalls5%,SKFrises10%.
IfIYFfalls10%,SKFrises20%.Andsoon.
TherearequiteafewUltraShortETFsyoucanusetoprofitfromacollapseindifferentmarket
indexesorinindividualsectors.
Belowisalistofthemostliquid,popularUltraShortETFs.
1) TheUltraShortS&P500ETF(SDS)
2) TheUltraShortDowJonesIndustrialAverage(DXD)
3) TheUltraShortRussell2000ETF(TWM)
4) TheUltraShortFinancialsETF(SKF)
5) TheUltraShortRealEstateETF(SRS)
6) TheUltraShortMaterialsETF(SMN)
7) TheUltraShortEmergingmarketsETF(EEV)
8) TheUltraShortChinaETF(FXP)
9) TheUltraShortBrazilETF(BZQ)
AsIstatedbefore,theseinvestmentsarenotwithouttheirrisk.
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Thereasonisthattheyareinfactbasedonderivativesownedbythelargebanks.
Putanotherway,whenyoubuytheUltraShortFinancialsETF(SKF)youarenotactually
shortingallofthefinancialcompanies’stockslocatedintheFinancialsETF(IYF).
Instead,youowntherightstoderivativesthataremeanttoproducetheintendedreturnthe
UltraShortETFpromises.Becauseofthis,shouldthebankorfinancialentitythatissuesthe
UltraShortETFgobankrupt,it’spossibleyoucouldloseyourpositionentirely.
Thiswouldnothappeninstantly.AllCrisistaketimetounfold.TheTechCrash,forinstance,
tooktwoyearstocomplete.
SowhenthenextCrisishits,therewillawindowoftimeinwhichUltraShortETFswillofferyou
thechancetoseeenormousreturns.However,atsomepoint,iftheCrisisgetsbadenough,it
willbebesttogetoutoftheseinvestmentsaltogether.
IcannottellyouwhenthiswouldbeasitwillallbecontingentonhowCentralBanks
reacttothenextroundoftheCrisisaswellasyourpersonalriskappetite.
AllIcansayisthatwhenthemarketstakeanosedive,UltraShortETFswillofferthepotential
forextraordinarygains.ButoncetheCrisisbecomestrulysystemic(meaningbanksarefailing)
UltraShortETFswillnolongerbesafetoinvestin.
ThisconcludesthisSpecialReport.Init,we’veoutlinedthenatureofthebondmarketbubble,
explainedhowtheUSDollarcarrytradehasalreadylitthefuseonthenextCrisis,outlined
threeeasytoimplementstrategiestoprotectyourwealthfromthecomingCrisis,anddetailed
howyoucanuseUltraShortETFstoprofitfromamarketcollapse.
Thankyouforreading…
GrahamSummers
ChiefMarketStrategist
PhoenixCapitalResearch
21