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Tags: Aluminum, bailout, buy and hold, China, commodities, Copper, economy, ETF, futures, GDP, investors, money, national debt, Natural Gas, oil, Real Estate, REIT, treasury, unemployment, US Debt, US dollar, US economy, Washington, Zinc

The Giant Awakens

Posted on 20 May 2009 by Allgen Financial

Unemployment is on the rise, gross domestic product is still hovering in negative territory, our national debt is being protested in the streets across America and word is out that the US Treasury is printing more of the greenback to offset bailout initiatives coming out of Washington. In addition to this, United Nation officials are discussing the possibility of creating a world currency to replace the US dollar in the world economy. From the outside looking in, it would seem as though we were under an economic attack yet while the media focuses on the great political divide, a story is emerging from the other side of the globe that could change our economic landscape forever.

China has recently announced their plan to sell out of their U.S. dollar position, describing our economy as a “black whole”, with concerns of our treasury printing more dollars which would only hurt their position as they continue to carry $1.9 trillion of U.S. debt. This is not the first time Beijing has voiced concern over its massive exposure to the US dollar and it most likely will not be the last. In an effort to hedge their economy Beijing’s plan is to concentrate on building an inventory of copper and other industrial metals in order to grow their infrastructure over the next 50 years. Such little attention is being paid to this story that I’m starting to wonder whether or not American investors realize how significant this shift in Chinese policy is regarding the state of the U.S. economy.

As the world’s main reserve currency, the US dollar is used to set international market prices for oil, gold and other currencies. If Beijing abandons their support for the US dollar and the world embraces a “New World Currency” what will happen to the value of our money in the years to come? It doesn’t take much to figure out the answer to this question but in case you have not been on top of this story you should know that these events could have a devastating effect on our economy. The average citizen could see inflation like we have never seen before and investors will be left searching for answers of their own, wondering what to do with their money.

We are certainly navigating in uncharted waters but before you jump into your financial lifeboat let me say this, even during the great depression there were fortunes made by those who were able to follow the money flow. Understand that crisis will often produce opportunity but you have to be willing to seize the opportunities as they present themselves. Back in the early thirties investors didn’t have the news channels like we have today nor did they have the ability to move money as quickly as you can right now. On top of that, the average person didn’t have history as a guide because when the great depression hit, most people were caught off guard unable to hedge themselves with a plan. If you are willing to accept the fact that our world is rapidly changing then you are in great position to capture new profits as long as you are on top of the money flow. For example; if you knew that China was interested in accumulating a position in copper and other industrial metals, then why not invest in those commodities? Seizing opportunity doesn’t mean “buy and hold” till you die, it means looking ahead with an understanding that new trends are created every time an economic shift takes place. One idea for you is to look into commodity Exchange Traded Fund’s (ETF) these instruments take advantage of higher prices in the commodity markets through different portfolios that can include long positions held in Oil, Natural Gas, Zinc, Copper and Aluminum Futures. You don’t have to concentrate all of your money in such an investment but it may help put your mind at ease knowing you are at least moving with the money.

If you think the dollar is on the verge of a collapse, you might consider certain currency ETF’s that would appreciate when the value of the dollar falls. A falling dollar can lead to inflation so you might want to hedge your cash position. Historically, gold has been one of the best places to be when inflation hits the fan but these days you have a variety of ways to invest in this precious metal without having to worry about insurance or storage costs. There are certain ETF’s that allow you to benefit from higher gold prices without having to take delivery of any gold whatsoever.

Another investment that did very well in the 1970’s, while we were experiencing double digit inflation, was real estate. But let’s face it, the experts are still trying to figure out if this market has hit a bottom yet, so one way you can participate without having to worry about putting too much money in this market, is to look at the Real Estate and REIT ETF’s. No lawyers, real estate agents, or closing costs. It trades like a stock which makes it easier to manage risk. You can use stop loss orders on all these that I have mentioned and each can be easily tracked on a price chart.

The formula is simple. Identify the trend, invest your money in the direction of that trend, then, focus all of your attention on protecting your investments with stop loss orders. Above all, try not to fear this market, but instead seize the opportunities as they present themselves to you. We are no longer in a buy/hold environment, we have entered into the new age of buy and protect.

Written By: AJ Monte CMT
Chief Market Strategist
The Market Guys

If you are a do-it-yourself trader and you want to learn more about the strategies mentioned, feel free to visit: http://www.themarketguys.com

If you agree with the strategies mentioned, but you want a professional to manage your assets using some of the strategies above then contact Allgen Financial Services, Inc at (407) 210-3888 or advisors@allgenfinancial.com.

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