A reader asks for my opinion about how to protect against a collapse in the US. He asks if currencies or foreign stocks would help. Before I answer this, let me be clear I am not in the collapse-is-coming crowd.
I think it depends on the nature of the collapse. If the US economy simply rolled over because of all of the things that are known and have been worried about for ages I think diversified basket of foreign currencies would work. There are the ETFs that I have written about, I also believe it is possible to have an account at Everbank with different currencies in it; here I am not talking about the CD's but just holding currency in an account. If anyone knows about this please leave a comment.
Various commodities should do well also. Here the usual suspects like gold, silver, maybe some industrial metals that China steel needs and probably agricultural commodities too. I am sorry to report that the 29 commodity ETFs listed in London in September will not be available to trade in the US, so says Schwab. There are a couple of broad based products here to trade that will have to suffice for now.
Foreign equities may not do well in a broad sense. The US markets wag an awful lot of global dog. There are several types of countries that might be able to do well. The first type might be a country like Australia. It has a low correlation to the US market and held up very well during the blow up of a few years ago. There are other commodity countries too like Norway, New Zealand and a few places in South America but I would not be too gung ho on Canada in this regard.
I also think some "in their own world" countries might do well too like Turkey, Russia, China, India, and Iceland. Here the thought is that there are some countries where the internal story is such that there is not much reliance on the US for these stories to continue evolving.
In a similar vein I think certain frontier investment destinations could keep chugging right along with or without the US.
There are certain themes that could prevail, here the water theme comes to mind. Now I may or may not be right about water prevailing but there would be special themes that would work out.
Staples stocks or certain healthcare stocks should do better overall be would probably not be completely immune to a big decline.
If you think foreign stocks would be a good place to hide out, OK but watch out for iShares EAFE (EFA). It is heavy in Japan and the UK which would not be places I would bet on in light of a true collapse.
Domestic bonds might not be so great, I would think US rates would go up a lot in the face of an economic collapse.
One last point on this; there are often a lot of comments in this context about owning dividend paying stocks. Be careful with that one. I think it is too broad a statement. Yes high dividends bring something to the table but stocks of companies that pay dividends can still decline. During the US blowup of a few years ago the financial sector had a couple of different times where it fell 20%-25% very quickly. I mention the financial sector because it makes up 36% of iShares Select Dividend (DVY) (client holding), in fact most of the domestic dividend ETFs are heavy in financials and I would not expect that sector to be a great place to hide in the event of a collapse.
I would also be careful, in this context, with Powershares International Dividend Achievers (PID) (client holding). When PID first listed it had 20% invested in Canada including 13% in Canadian banks. Eyeballing the PID page it appears to be not quite as heavy in Canada but it still owns close to 10% in Canadian banks (under the sector header NA). Again this is about my opinion that in a US collapse Canada would not be spared. I'm a big fan of Canadian banks ex-collapse, I own one personally and for clients but I would expect it to get hit in the context of this question.
As an FYI most of the broad based WisdomTree funds are heavy in financials but they do not invest in Canada which might make them an alternative to PID in light of a collapse.
If the collapse came because of a terror attack on some unprecedented scale I would expect the dollar to go up along with bonds, gold and the Swiss franc.
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5 comments:
"A reader asks for my opinion about how to protect against a collapse in the US. He asks if currencies or foreign stocks would help....I think diversified basket of foreign currencies would work"
I assume this reader is an investor.
It's interesting how many investors do not set up their portfolios with some form of protection "against a collapse in the US". Seemingly they wait till the ball slowly starts to roll down hill (i.e. lower housing starts and other eco data) and then get panicky and ask "where should I be other than us large / small/ value/growth and that one bond and inter fund I have." Should the "model" portfolio not address this at the initial setup?
Funds like PSAFX and Bearx and some of the ETF funds have done well YTD and (I think) should do ok in both collapse scenarios. Regardless of your picks though you have got to have something already in there, no?
This is a good point. Usually big bad turns happen slowly. In 2000 the SPX lost 10% over the span of several months-giving plenty of time to get out. When the market crashes, it tends to snap back quickly. I feel much less need to protect against a crash. A slow rolling over is more treacherous because people don't worry about it like they do a crash and it should be the opposite.
Everbank does have access acounts in varying currencies. They pay very little or no interest, but are immediately liquid. Everbank.com then Everbank World markets then currencies will get you lists.
To get currency exposure through a mutual fund...what about a shortterm global bond fund??????
Does anyone in their right mind expect markets to function if the US collapses? Good grief.
If society collapses, how in the hell are you going to get to Switzerland....row?
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