Join        Login             Stock Quote

How To Guard Against Another Financial Crisis Around The Corner?

 May 31, 2011 07:36 PM

Mark Mobius, executive chairman of Templeton's emerging markets group, has been bullish on emerging markets and in general, was optimistic on emerging market economies. Recently, he has sounded increasingly cautious on global economy. 

At a recent gathering, he made the following points:

  • Derivatives are not regulated and in fact, they are growing. 
  • The financial institutions are 'too big to fail'. They are even bigger today than pre-crisis. 
  • Business as usual, none of causes of the previous crisis has not been resolved. 

To summarize, Mobius stated that another financial crisis is around the corner. See here for a Bloomberg report. 

[Related -Buy Gold While You Still Can!]

So how to position your portfolios against the coming crisis (we know there will eventually be one, just don't know when)? The following are several measures to consider:

  1. Review your portfolio risk level: it is paramount to re-balance your portfolio to a risk level that you are comfortable with. You might want to ask yourself: what happens if the stock markets dropped 20-30% tomorrow? Can you withstand that? How about 40%?
  2. Diversify, diversify. Though when crisis happens, most likely all risk assets will dive synchronously, no two crisis are the same. Furthermore, it is critical to monitor fixed income, especially long bonds and credit (TED) spread. They can give you some early warnings. Right now, long bonds have risen since the ending of QE2, it is worth to monitor. 
  3. Follow the economy, let markets tell you: at the moment, the economies have definitely slowed down. Risk assets are still at elevated levels. For now, it is a good idea to monitor major asset movements. MyPlanIQ market overview page lists updated major asset trend scores. When it is called for, one should be prepared to underweight risk asset exposures. 

[Related -Finally, Market Capitulation Gives Bulls A Real Test Of Conviction]

At the moment, hard currency such as Gold (GLD) is somewhat viewed as safe haven, along with U.S. treasury bonds (TLT). Recently, fixed income market has improved due to the series of bad news in economy. Total bond market index ETFs (AGG) (BND) have positive trend scores now. 

It is also a good idea to monitor the simplest model portfolios that have six core asset ETFs as candidate funds (SPY) (EFA) (EEM) (IYR) (DBC) (AGG). These portfolios serve as barometers on how diversified and tactical portfolios have behaved recently. See Six Core Asset ETFs plan for more details.

iOnTheMarket Premium


Comments Closed

rss feed

Latest Stories

article imageSavings Glut and Financial Imbalances

Martin Wolf in today's Financial Times discusses the reasons for low interest rates and suggests some read on...

article imageA Dividend Aristocrat Is Now On Sale

The bear market investors have been dreading is already here for many individual stocks. While the S&P 500 read on...

article imageTwo Picks to Play Defense in a Slowing Economy

Is the economy slowing? Last Thursday the Institute for Supply Management (ISM) reported that its read on...

article imageUS Jobless Claims Fall, Moving Closer To Multi-Decade Low… Again

US jobless claims continue to cast a positive glow on the outlook for the labor market. Today’s weekly read on...

Popular Articles

Daily Sector Scan
Partner Center

Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.