Still worried about wealth preservation in this market!

ionapaul

See thread title - I sold my US$ denominated equities over 12 months ago as I believed the $ was really going to slide versus the € and it was a good move. Since then I've only held 4 equities (Tesco bought in Oct 2005, Royal & Sun Alliance bought in July 2004, Gold ETF bought in April 2006 and Silver ETF bought in May 2005) and the majority of my investments has been made up of Northern Rock savings and subsequently First Active and Rabodirect savings. Although my equities are doing reasonably well (all well up except the Silver ETF) and the dividends are decent, I plan to sell Tesco soon (think Sterling will continue to decline versus the € and the economic situation will worsen, leading to poor sales). This will leave me with relatively little diversification beyond the savings accounts, which are probably not beating inflation!

I am much too pessimistic regarding the US, Irish and British economic outlooks to invest in these markets and furthermore think there are also asset bubbles in most emerging markets, particularly in China. What are people doing with their cash in such troublesome times?! What to do if you think worldwide equity markets and property markets are still extremely overvalued and inflation is rising?! And what sectors do well / hold their own in a recession?

Minder

Inverse index mutual funds or ETFs - USA based funds that accrue value as the major indices slide. There are a number available that track the S&P500. Also

SRS tracks Real Estate prices in the USA

SKF track the financials.

More information about Proshare double inverse index products here

ionapaul

Thanks Minder, very interesting. Might be a little too risky for my tastes (Am I right to think they are both x2 geared?) but you never know. If you thought the $ would not depriciate more versus the € and the US equity markets are going to continue to go down, it would be a nice little bet!

Just saw that today Goldman Sachs has followed Merrill Lynch in saying the US is either 'in recession or falling into recession'. Bad news for Ireland Inc too I think.

daveirl

This post has been deleted.

A Random Walk

In a recession the theory would be "defensive" stocks e.g. consumer staples (supermarkets etc). They've been seriously bid up however so the value may not be there.

In high inflation generally hard commodities do well.

I'm sticking to my DCA plan but am keeping away from the Anglo Saxon property bubble economies for the most part e.g. Eurozone ETF for Euro exposure, in Asia investing in China indirectly e.g. Taiwan, Singapore & avoiding ETFs with significant UK/Australia/US exposure. I am still buying US shares (again ETFs).

I think commodities, particularly agricultural, will continue to do well.

PDelux

I think commodities, particularly agricultural, will continue to do well.

Some companies involved with argiculture products such as seeds, fertilizers are up 200+%, even 300+% since early 2007(POT,TRA,MON,CF). Question is if they can go further?
I mean if the agricultural commodities continue to do well would it mean these stocks could see gains like that this year even in a bear market?

ixus

Howdy!

Recently, I've discovered this website http://www.greenenergyinvestors.com/index.php?act=idx
It's not entirely devoted to green energy as the title would imply but includes discussion on all types of investment. There are great links to articles and interviews with the likes of Jim Rogers, Marc Faber etc.

I've been trawling through it, starting back in 2006 and can see that a lot of the recommendatons/predictions posters made in 2006 being realised. Check it out.

Your defensive stocks are the traditional ones to choose in times of recession. Utilities, tobacco etc. Agri or soft commodities are others.

Additionally, I recall Jim Rogers saying that it is historically better to track gold itself rather than a particular company. This is because you may not be fully aware of how that company is managed and you may choose a poorly managed one. There was an article yesterday in the FT on how mining companies were at a deadlock with the govt in Argentina as they were increasing taxes despite an agreement not to.

Ixus

dunkamania

ionapaul wrote: »

Since then I've only held 4 equities (Tesco bought in Oct 2005, Royal & Sun Alliance bought in July 2004, Gold ETF bought in April 2006 and Silver ETF bought in May 2005)

If you are that worried about preservation, you should read up on diversification.
http://www.investopedia.com/terms/d/diversification.asp

ionapaul wrote: »

I am much too pessimistic regarding the US, Irish and British economic outlooks to invest in these markets and furthermore think there are also asset bubbles in most emerging markets, particularly in China.

I will point out that the ISEQ is trading at9.56 P/E

I personally am waiting for a pullback in emerging markets to use as an entry point.

Also a defensive stock is one that performs well relative to non-defensives in a recesion, which may mean a drop of 10% in a market dropping 20%.

ionapaul

dunkamania wrote: »

I will point out that the ISEQ is trading at9.56 P/E

I personally am waiting for a pullback in emerging markets to use as an entry point.

My problem with current P/E figures is that although the ISEQ multiple may seem decent all things being equal, a recession hitting Ireland, the US and the UK will depress future earnings so much that this current multiple is almost meaningless! Obviously I could be waaaaaay too pessimistic here, think that is probably my nature

The Chinese market's bull run smacks of an asset bubble to me, having lived through and worked in the dotcom roller-coaster ride in the Bay Area during the height of the mania. Chinese public servants taking out loans to pile into equities they know nothing about?

I agree I definitely need to think long and hard about proper diversification, but as I am relatively young I could live taking a few risks during the bull run of the last few years, need to change now that I've hit my 30s!

A Random Walk

ionapaul wrote: »

The Chinese market's bull run smacks of an asset bubble to me, having lived through and worked in the dotcom roller-coaster ride in the Bay Area during the height of the mania. Chinese public servants taking out loans to pile into equities they know nothing about?

It is critical to understand that Chinese shares are quoted in multiple markets, some of which are accessible only by Chinese people or foreigners. It is the Chinese only Shanghai market which has seen the mania develop, and you can find the same share trading at a three times multiple to the share you or I can buy in Hong Kong.

Yes I agree with you it has all the hallmarks of a bubble, but it remains to be seen whether the markets that foreigners can buy into are over-valued. Personally I'm going to continue buying.

Cantoris

There comes a time when, if you are in wealth management mode, you just gotta sit it out. Put your money in a high interest earning account and sit on it until the markets come back in what you believe tobe your favour. Sticking a few bob into gold when economies and equities are going south is a good defensive move. I'd also think that strong brands will do well as competition bites the dust in a weakening economy. But there is nothing wrong with admitting you just don't know what to do, and stick it in the bank until you see an opportunity.

On the property market, a lot depends on how long term a view you are willing to take. There are plenty of opportunities out there for aggressive funds that want to mop up some cheap buys as retail vendors need to release cash to investors. 100 to 150bps movement in London for prime makes sense as your ICRs are now covered, even if you need to put a few bob more in upfront. The is still huge demand for decent office space in many capital cities as occupiers become increasingly more efficient in their use of space. This pent up demand will need to be housed and lots of new projects will be shelved due to lack of financing. This will lead to a medium term issue with supply and demand. For those willing to take a 5 to 7 year view on the market, there could be opportunities.