Steps To Take With Your Portfolio In A Bear Market
The Dynamic Wealth Report
March 17, 2008
Do This Now To Make Money In The Markets
Are you scared yet? I’m looking at the news of the
Bear Stearns (BSC) bailout
- now takeover - and it makes me sick. I know I wrote about this very
topic Friday, but this is a huge news event and you need to know what’s
going on. You need to know the truth.
This morning the Dow Futures were trading down more than 200 points, and
as I write this, we are off more than 140. The Japanese Nikkei lost more
than 3.7%. The London FTSE is down 2.5%. It’s the same news around the
world. The global markets are in turmoil because of Bear Stearns.
Bear Stearns was once worth more than $150 per share but is now worth $2
. . . and that’s being generous. Bear had a run on its prime brokerage
business. That part of the business holds the accounts of hundreds of
hedge funds – worth billions of dollars. It started off slowly with one
hedge fund withdrawing their money then another. Quickly it accelerated
to the point that withdrawal demands swamped the firm and Bear Stearns
collapsed.
But that’s not the scary part.
The scary part is NOT how the 5th largest investment bank in the United
States became insolvent within 48 hours. No. The scary part is the
question . . . Who’s Next?
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How can we be optimistic in market conditions like this?
Here’s the silver lining to these very dark clouds (if you can call it
that). The Federal Reserve stepped in and orchestrated a buyout of the
firm. They didn’t let Bear file for bankruptcy, which would have
destroyed the markets. The Federal Reserve pushed off certain banking
collapse and is leading an organized winding down of the Bear Stearns
business. (Ben has his hands full if you ask me)
So, Bear is being bought for $2 per share, the global markets are in
upheaval, and the Fed just saved us from slipping into another great
depression (maybe).
What do we do with our money on days like these?
I’ll tell you what I’m doing. I’m watching my hedged positions closely. I’m shorting the US Dollar. And I’m preparing for my next trades. You
should be doing all of this as well.
First off, we have been warning readers of the danger in the markets for
some time. As a matter of fact, in January, we repeated the
suggestion that you hedge part of your portfolio. There are lots of ways
to hedge, and I strongly suggest you re-read our article – “Why You Need
To Hedge This Market Now!”
I followed that advice (I’m no dummy) and hedged part of my portfolio.
What I did was buy puts on the NASDAQ 100 (QQQQ). Needless to say, those
puts have gone up a great deal in value helping ease the sting of the
falling market. We are in a bear market and in an economic recession. Don’t take your eye off the ball. Continue to monitor your portfolio and
watch your hedging transactions closely. In the case of puts, they have
expiration dates so you might need to roll them over or buy new ones.
The second part of my activity today is to short the US Dollar. Now
before you get all upset and send me hate mail remember . . . I’m here to
make money. Don’t call me unpatriotic. I have identified a way to make
money, and I’m going to take advantage of it.
The Federal Reserve cut rates over the weekend because of Bear Stearns. Everyone expects them to cut rates again at their meeting tomorrow. Every time rates get cut, money flows out of the US and into other
countries. That’s a fact. When money flows out of the country, the US
Dollar falls in value. I’m currently buying call options on two
currencies that will benefit the most from this expected move by the
Fed.
The third and final project for today is preparing for my next trades. I’ve started making a list of great companies that I would like to add
to my portfolio. These are companies that I can own for 10 years or
more.
We’ll one day fall to a level that will be known as the ‘buying
opportunity of the decade’. It’s happened before and it will happen
again.
Know which stocks you like – and why you like them. Look for undervalued
companies and stocks with generous dividends. Look for long term growth. Before long, the time to buy will arrive and you want to be prepared. That’s how you make money in markets like today.
• Airlines (Down 31%)
The Airline industry has fallen significantly on concerns over higher
jet fuel prices. Fears of a recession reducing the number of travelers
is also hurting financial expectations. The group is being lead lower by
Northwest Airlines (NWA) which is off almost 40% in the last month.
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