Rick says your portfolio should be all about playing safe for now. He recommends eight inverse ETF plays to hedge against this downside risk.
I can understand the fixation on the bailout, but other economic reports are getting lost as a result.
Last Thursday was a day that the mass distraction was working to its
full capabilities. Investors chose to ignore all economic data in order
to focus on the progress of Congress.
In case you missed it, durable goods orders for August were down 4.5
percent from July (I guess the stimulus checks ran out), initial
jobless claims jumped to 493,000 (the highest figure in seven years),
new home sales dropped to a 17-year low and home sale prices dropped
11.8 percent (the largest drop on record).
But the bailout is going to solve all of this and it will do it immediately, right?
I don’t think so. Companies are not going to start borrowing
tomorrow and banks are not going to start throwing money at people all
of the sudden.
Granted the bailout should help stabilize things and keep us from
going into an all out meltdown, but it is not going to fix everything
and it isn’t going to do it immediately.
I hate to sound like such a doom and gloomer, but if it’s cloudy
outside, I am not going to tell you that it’s sunny and hope that you
don’t notice.
Last Wednesday, we had a company wide meeting and we were all asked
to state what our goals were for each day. My answer was in two parts:
my goal is to make my readers money or educate them. It’s that simple.
Having said this, should a bailout agreement get reached before you
receive my article this morning (they are feverishly working on it),
expect a rally when an agreement is reached and it is approved in
congress. But don’t go buying into the rally.
I think this is going to be another case of buy the rumor and sell
the news. Any agreement that is reached will cast a sense of relief for
the financial sector, without a doubt. However, it isn’t going to solve
the underlying problems with our economy.
We will continue to see job loss in the coming months (the September
employment numbers will be released on Friday), consumers will still
struggle to keep up with their obligations and the housing market will
continue to slip for the foreseeable future.
I have expressed in IDE many times that I don’t think the economy
turns around until the housing market turns around. Based on the
housing reports last week and the inventory of homes on the market,
housing isn’t going to rebound in 2008. My guess is that it will be at
least the second quarter of 2009 before we see housing start to
stabilize, and then the second half of the year may produce an actual
upswing in housing.
Until the economy starts showing some improving vital signs, your
best bet with your portfolio is to play it safe. Keep part of your
portfolio in cash and use part of it to play the downside.
A few weeks ago I mentioned inverse ETFs as a way to play the
downside. I received an email from Joan K. asking for a list of inverse
ETFs, so for Joan and all of your benefit here is a short list.
ProShares Ultrashort QQQQ-QID
ProShares Ultrashort Dow 30- DXD
ProShares Ultrashort S&P 500- SDS
ProShares Ultrashort Russell 2000- TWM
ProShares Ultrashort Semiconductors- SSG
ProShares Ultrashort Financials- SKF
ProShares Ultrashort Basic Materials- SMN
ProShares Ultrashort Technology- REW
If you want to hedge your portfolio appropriately, you can buy the
inverse ETF that most accurately depicts the rest of your portfolio.
For instance, if you own numerous technology stocks, to hedge your
portfolio you can buy the QID or the REW. The REW is the leveraged
inverse technology fund, but the QID should also gain if technology
stocks continue to drop.
