Wall Street Bailout

Hello to all,
So, what does this $700 billion bailout of Wall Street mean to you? How can we make money whether or not it passes?

I am sure most of you agree that it is a disgrace how our capitalistic society works from the standpoint of a common phrase that many of you have come across: privatize the gains and socialize the losses. The more disgraceful aspect is that if we don’t approve the bailout plan, then all of us Main Street folks will continue to suffer as a result of more banks failing, fewer foreign entities looking to invest in the US, less confidence in the dollar due to ongoing financial sector woes, etc. I really feel that our economy is in a situation that we will suffer whether or not the bailout plan gets approved by Congress. Sorry…don’t mean to be so morose.

If the bailout plan gets passed (each day it looks to be an increased likelihood of doing so…would Warren Buffet have come to Goldman Sachs rescue if he didn’t have some sort of assurance or confidence that the plan will pass?), that means the US will turn the printing presses on again (was it ever turned off?) to the tune of $700 billion which will inevitably resume the devaluation in the greenback. Gold stands to be the winner if this happens. Silver will follow right along. Some safe investments in this area include buying actual gold and silver bullion (kruggerands, maple leafs, eagles, bars, etc) if you can still find some, buying shares in the GLD and SLV etfs, or being more speculative with the mining stocks (SSRI, AEM, ABX, and GBX to name a few that I personally like). If you are looking to be conservative and have easy access to converting your investments to USD, I recommend GLD and SLV as they should trend along with the spot prices for gold and silver without the intangibles and leverage inherent in the mining companies. Also, both etfs have been adding millions of ounces to their holdings over the past few weeks.

I don’t know about you but the last few days have ominously felt like the quiet before the storm or the eye of a hurricane. Is there more bad news to come? Will this bailout plan solve all of the US economy’s problems? I, personally, don’t feel that we are close to being at the end. China recently ordered its banks to cease lending with the US banks for the time being. Foreign nations are rethinking whether the USD is the reserve currency of choice. Many nations want our troops out of their countries. US firms are increasingly selling significant ownership stakes to foreign entities. As a result of all of this, I think we should all have defensive plays and companies that are the largest and meanest and baddest in their respective sectors in our stock portfolio. These would include WMT, KO, and MCD to name a few of the ones I like. In tough times, the dollar menu looks to be more and more attractive, everyone will keep drinking Coke, and shopping at Wal-Mart isn’t too painful on the wallet.

Whether or not the bailout plan passes, I think commercial real estate still hasn’t been beaten down enough as it typically lags the residential sector. If consumers aren’t buying, then retailers eventually won’t be expanding, which should place continued strain on the retail sector. Also, the office sector should continue to see cap rates increase because Corporate America is definitely not in a growth mode. However, with that said, if you are going to own commercial real estate, you want the class A in strong metropolitan areas as they will naturally hold up the best. So, the stock I like to profit from the continued downturn is SRS. It is a way of shorting the real estate index. Watch out for potential wild swings with this one and hold tight with your thesis because it makes no sense that this etf is well off its 52-week high since commercial real estate is still in the early stages of its inevitable downturn.

Also, in these turbulent times, always keep part of your portfolio in cash. Personally, I have about 20% in cash. I pulled my gains over the last few weeks and stuck it in cash. I kept the principal in the stock market but maintaining a 20% stop loss mentally. Never manually input a stop loss or trailing stop loss position into the markets! Too easy for the traders to take advantage and dip a stock so it executes just to have it trade higher moments later.

Until later…
Moolah