Monday, 8 August 2011

Urgent Self-Defense for Hazardous Times

 

All hell is breaking loose in the economy and the stock market.

So my inbox, Facebook page and blog are packed with emails from investors asking what they should do to protect themselves.

I understand your concern and confusion, and I’ll give you the urgent answers you need in a moment. But first a quick retrospective …

We’ve Been Trying to Prepare You
for This for a Long Time Now.

In 2008, we warned that Washington stimulus would only delay the ultimate consequences of this great recession and make the final capitulation far worse than it needed to be.

In 2009 and 2010, while Wall Street celebrated what most thought was the end of the recession, we advised caution, saying that the stock market rally would last only until the stimulus money ran out.

And this year, that’s precisely what happened, and we have repeatedly written that the economy was living on borrowed time.

Now, just in the past few weeks, our warnings have been validated in spades — and we’ve been focusing our readers’ attention not on economic forecasts, but on economic facts:

On the slowing economy … on accelerating declines in home prices … on rising home foreclosures … on increasing weakness in the banking sector … on stubbornly high unemployment … and on the Fed’s attempts to gut the dollar of its buying power … on the fact that the second phase of this great double-dip recession is clearly beginning. NOW.

And sure enough, the stock market is cratering, just like we warned you it would.

Urgent Self-Defense

So what should you be doing now to protect yourself and profit as this great crisis returns to hammer Wall Street?

Here’s what I recommend …

Step 1. If you’re uncomfortable with the risk you’re taking — if you feel you’re overloaded with stocks — sell approximately HALF of nearly every stock position you have right away.

(There may be some exceptions. But I’ll leave that up to you and your advisor or the editor you’re following.)

One reason I don’t recommend selling entire positions right now is because you may be able to get better prices on an intermediate rally, which leads me to the next step …

Step 2. Determine which stocks are probably the most vulnerable by checking their rating at www.weisswatchdog.com. Then …

  • If you’re not a member, sign up. It’s free to our readers.
  • At the top of the screen, select “stocks.”
  • Enter the FIRST word of the company name and press “search.”
  • Add your stocks to your watchlist and then go to the watchlist to check the rating.
  • If it’s D+ or lower, I would seriously consider selling the rest on any significant rally in the market. But if it’s a B+ or better, it has a much better chance of holding up a lot better than the rest of the market.

Just be aware that the rating is not the ONLY factor to consider. There may be some exceptional stocks you may want to hold for special reasons. Again: Also consider what your advisor or editor is recommending.

Step 3. No stock, no matter how highly rated or how special, is risk free. All can be vulnerable to stock market crashes, as investors dump the baby with the bath water. So to protect yourself against that risk, consider inverse ETFs as a hedge.

You can buy inverse ETFs for protection against a decline in the S&P, the Dow or the Nasdaq. Plus you can buy them to hedge against declines in various stock sectors.

Any investor can add inverse ETFs in any stock brokerage account; you purchase them like any stock. And you can often tailor your selects to approximately match the kinds of stocks you have left in your portfolio.

The goal: The more your stocks fall, the more your inverse ETFs rise, helping to offset your losses and give you pretty good protection.

Good luck and God bless!

Martin

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