Sunday, May 30, 2010

What Happens Next?

**I am not a financial advisor.  Please speak with one before making any investment decisions.**

The major focus of this site is to look at long term macro economic shifts in the global economy and how that will affect different investment classes and choices.

However, while the larger picture is fairly clear, the question I am most often asked is, "what is going to happen next?"  "What is going to happen right now?"

While I believe this question is less important than the big picture, I'll take some time here to talk about the short term picture I see and what I am personally doing with investment decisions.

It would take an entire book to give you the why, but here is one sentence to summarize my short term view:

I believe we are heading through a period of short term disinflation where assets across the board are going to fall in price.  In response to this event, central banks around the world will bring the nuclear option that will either re-inflate many markets, or break the financial system completely.

So what I am doing to prepare for this?

The first thing I have been doing is raising cash.  I am not selling any of the assets I already known, but I am not investing new money into the assets I like because I am waiting for a better price.

As an investor during these periods of fear in the markets you want to understand what is a fundamentally strong investment, one that could fall in price due to coming liquidations.  In times like this investors may need to sell anything to stay alive, creating opportunities for the prepared.

My shopping list looks something like this:

Australian dollar
Canadian dollar
Asian currencies and stocks
Gold
Silver
Oil
Agriculture

I watch the price of these assets on a daily basis.  I then wait for them to go on sale, similar to a housewife watching the prices at the grocery store.

So what do I recommend in the short term?

Try to create your own shopping list and decide which investments are fundamentally strong and which are fundamentally weak.

My shopping list of investments to avoid looks something like this:

American real estate
American stocks
Long term treasury bonds (federal government debt)
Municipal bonds (state government debt)
American corporate bonds (business debt)

To build cash I would recommend holding ultra liquid cash equivalents such as:

T-Bills
Cash at safe banks

(For additional investment recommendations please click on the FT Capital tab to the right)

Good luck shopping.  It's going to be a bumpy road ahead and hopefully many of the best assets will continue to go on sale.

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