Why you should own gold. Historically, Gold has been a safe haven in distressed times, during high inflation times, at times when there was distrust of the financial system, and during depressions. Any of this sound familiar? This time will be no different. Recently, gold has been under pressure as hedge funds have scrambled to raise cash unfortunately most hedge funds facing redemptions have had to sell what ever was liquid. And well Gold is liquid and has performed very well relatively so it has been a major source of cash. It isn't that they want to sell it they have had to sell it.
Another reason gold has been weak lately is because the dollar has been strong. In general, gold tends to act poorly in rising dollar environments because gold being an international store of value gets cheaper in dollar terms when the dollar gets strong.
The dollar has been strong because there is a squeeze on dollars due to all of the maturing dollar denominated debt that is maturing all over the world and isn't being rolled over. If you have noticed the Fed has been increasing swap lines globally to help this squeeze. Think of this as the tide going out. Once the squeeze is over, however, the opposite will be true. The dollar will get routed and inflation will take a hold in a big way. You should consider buying gold now because when the dollar breaks, and it will, you will be in good shape.
Stocks that will not perform well in a worsening economy are service stocks, retail stocks, cyclical stocks, and anything that needs access to the credit markets. For example Ford, GM, and Crysler they have the worst of all worlds. They have massive global competition, they need a lot of capital to operate and customers need access to debt to be able to purchase their products. There isn't much left in the sector to sell but if you think they are about as low as they can go have you considered that they can and probably will go to zero?
I like CAT as a short. Why? CAT has historically done well because they could always find a market somewhere in the world where there was a boom going on. Today there isn't a country in the world that is doing any new construction or expansion in fact the opposite is true. I would sell JOYG for the same reason.
The retailers are an easy sector to short, I picked about 17 of them almost at random. I am up on all of them. Why? Mom and Pops all over the world are tightening their belts and there is no place that they impact more directly than the retailing sector.
If you want to make money in this market, buy gold and short almost everything else. Stop looking for a bottom (in other words turn off the idiots on CNBC and think for yourself). The lows aren't in and they aren't about to be. We can easily fall several thousand points from here so stop trying to catch a falling knife.
My formula for success is owning gold and selling a large basket of stocks in small size. Take Apple. I love Apple and my family has probably done more to support Apple than any other. I cannot count the number of Ipods and mac computers we own. But lets face it when times are tough - and they are and getting worse- people will tighten their belts. If a rising tide lifts all boats what does a falling tide do?
