What To Do With Your Money During A Recession

Two Investments To Make For The Recession

Date 12/08/2008

The Right Side

Ben Traynor

Breaking news: Russia ends operation in Georgia. The investment to make right now...

I’ll keep this brief, as things are happening quickly. Remember yesterday I told you Manraaj Singh was looking at making a recommendation in Georgia? Well, he’s going for it!

Is he mad? Maybe. But Manraaj has pulled off this kind of stunt before... and been rewarded for his boldness. Things are happening fast now that the Russians have halted military operations. So you need to act immediately. Make this investment today, and you could be sitting pretty as peace returns to Georgia.

Two investments to make for the recession

I created a bit of a stir last Thursday. Here’s what I wrote:

I think the euro looks attractive. It is coming of age as a truly global currency. The European Central Bank has taken a firmer line on inflation than either the US Fed or the Bank of England. And the economic size of the Eurozone means, in time, the euro could trump the ailing dollar as the world’s reserve currency — something the pound will never be again.

This prompted several emails from readers. "Isn’t the euro overvalued?" they asked. After all, none other than Bill Gross — the world’s most experienced bond dealer — has stated as much. He reckons the Eurozone economy could see a worse downturn than the US. Good news for the dollar; bad news for the euro.

As if that weren’t enough, a similar view is being expounded in this very office! MoneyWeek’s free daily email, MoneyMorning, recently carried the headline ‘It’s time to sell the euro’.

So what’s going on? Is this a simple, straight-down-the-line difference of opinion? Well, no... but also, kind of, yes. Let me explain.

At The Fleet Street Letter, we recently recommended a play on the euro. As I wrote to subscribers:

Recommending a euro play is by no means a ringing endorsement of the Eurozone economy. Continental Europe shares many of our problems. Plus it has a few of its own.

Industrial output fell 1.9% in the year to May. That compares with 1.6% in Britain. Eurozone unemployment is 7.3%. It’s only 5.2% here.

In acknowledging Eurozone weakness, we are in agreement with Gross, MoneyMorning et al. And yes, the euro may see some short-term weakness against the dollar.

But, for our purposes, this is a secondary concern. As Britons, we’re chiefly concerned with how the euro does against the pound. The recommendation we have made is not a pure currency play. We’re not trying to time the market here. No, our play offers you the chance to make a regular, reliable income while also hedging against a fall in the pound.

We want an investment that can be a portfolio cornerstone over the long term. We rejected the dollar because we believe recent rallies will be short-lived.

The US is heavily over borrowed. Countries such as China and the Gulf States are sitting on piles of dollar-denominated reserves, the value of which is dependent on the actions of the US government and Federal Reserve. We believe they have a strong incentive to diversify out of that currency. The euro offers the only credible alternative.

Iran wants to set up an oil bourse that would trade oil in euros (and also in yen). So far it has proved little more than a provocative posture. But there are many countries that, privately, would surely like to see such a proposal become reality. Pricing oil in other currencies would free them of the obligation to hold US dollars.

The euro has the historical momentum. It is a new and rising currency — the dollar and old and struggling one. That is why we believe our euro-denominated investment will prove its worth.

To discover more, you’ll need to become a Fleet Street Letter subscriber.

As well as hedging against a fall in sterling, we also have a more direct way to play the recession. It’s a classic countercyclical stock — the kind that tends to go up when the economy goes down.

Theo Casey has more details on a company whose business model is a perfect play on an economic downturn.

Until tomorrow

Ben Traynor

Editor

The Daily Reckoning - What happened to stagflation?

What happened to stagflation?

Big news yesterday: gold dropped $36.50 — to $828.

Oh la la...and our "Trade of the Decade" — long gold, short stocks -- still has a year and a half to go. Looks like we should have ended this trade a few months ago, when gold was pushing up to $1,000.

What’s going on?

Well, it appears that the feds are losing the battle. We have the ‘stag’...but no ‘flation.’ All over the world, in almost every sector of the economy, prices are falling. Inflation is on the run — or so it appears today.

You can read the Daily Reckoning in full here.

P.S. If you enjoyed this article you can find out more about our free email, The Right Side by clicking here.

^ Back to top

LinkedIn
Twitter
Del.icio.us
Digg
Facebook
Google Bookmarks
Livejournal
StumbleUpon