Surviving The Coming Bear Market

The FTSE 100 is flirting with The Bear. But move away from the blue chips, and we see the mid caps of the FTSE 250 first entered it back in January (I'm defining a bear market as a 20% fall from the peak).

The picture’s even worse if we look at the FTSE All Share. As The Times reports today:

"Based on the all-share index's losses since last June, its bear market would be judged as already having lasted for 63 weeks, making it longer than four of the five previous bear market episodes since 1980." As second quarter earnings season gets under way, the markets expect to face yet more headwinds. The real economy is teetering on the brink, and that’s going to hit profits — and share prices.

But, though it seems macabre, there are positives to be taken out of the situation.

"Events are now happening quickly," said colleague Andrew Vaughan at this morning’s editorial meeting. "It looks like we’ll be spared the long grind many have feared."

Garry White actually found the report quite comforting:

"It’s not been pleasant, but the world didn’t end during those 63 weeks," he said. "Nor will everything turn to dust as it continues."

That said, this won’t all be over by Christmas. The news from the wider economy continues to be bad.

Halifax reports that house prices fell 2% last month, following the 2.5% drop in May. Year-on-year we’re talking an 8.7% decline — the fastest since the Second World War.

And with inflation hanging around like a bad odour, the Bank of England won’t be riding to the rescue. It kept rates on hold yesterday. Indeed, it’s doubtful a rate cut would have even made a difference.

So you need a plan. To avoid getting mauled by the bear, here is one thing you definitely shouldn’t do. Followed by one thing you should:

DON’T load up on UK-facing stocks. This much is pretty obvious. As the economy continues to be battered, companies that rely on UK consumers for their revenue will feel the pain. And so will their shareholders.

DO buy shares in companies that make money overseas. By ‘overseas’, we mean those with exposure to economies that, unlike our own, will show strong growth over the next few years. Places like China, India and other emerging markets.

There are several such shares you can buy, right here in London. British companies that invested wisely before the emerging markets boom got into gear — and which are now reaping the benefits.

Indeed, there’s a big opportunity here, despite all the domestic doom and gloom. Our research team has identified three companies which epitomise this opportunity. On Monday, our sister publication, The Fleet Street Letter, publishes its report on these three investments.

If you’re looking for solid investments to see you through the bear market, make sure you get your copy.

The biggest transfer of wealth in history

We hear a lot about how global economic power is shifting from west to east. But what does this actually mean? What’s causing it — and exactly how much money is involved?

Most important of all, how does it affect us as investors?

I put these questions to my global investments analyst Manraaj Singh.

"Tell me about the world, Manraaj," I said. "What’s happening out there? And can I make any money from it?"

He didn’t let me down. In his latest piece, Manraaj takes a look at a truly unprecedented economic phenomenon

"What we’re seeing right now is probably the biggest and fastest transfer of wealth and economic power in history," he says. "But our daily media is still focusing on UK retail sales blues and falling property prices."

Don’t be like the herd. Don’t sit and mope. The biggest investment story of our lives is happening as we speak...

Until Monday

Ben Traynor

Today’s Daily Reckoning — When Delusion conquers Reality

"Hedge Fund Manager Describes Rock Bottom," says a New York Times headline.

Poor Mr. John Devaney. He had to sell his Renoir. His Gulfstream. One of his mansions. And his yacht. Ouch. He says he’s personally lost $150 million trying to keep his funds alive. Alas, in vain!

"Devaney funds wiped out," Bloomberg reports.

Now, the sad victim of the credit crunch is reduced to living in his remaining mansion in Aspen...and flying first class in commercial aircraft.

But is Mr. Devaney beaten? Not at all. "Do I retire?" (Even in his straightened circumstances, he allows himself a rhetorical flourish...) "No," he replies, as if there were any doubt about it.

And why should he? He may have wiped out a handful of unlucky investors, but there are still plenty more.

You can read today’s 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.

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