Sept. 29, 2011, 12:01 a.m. EDT
5 money moves one debt-crisis expert is making now
Risk consultant Satyajit Das says global downturn is nowhere near done
By Jonathan Burton, MarketWatch
SAN FRANCISCO (MarketWatch) — There really is no polite way to convey what Satyajit Das is saying about the world that investors will face for several more years, but it must be said: The unwinding of the global debt crisis will make some people extremely wealthy, but most of us will have to live with less — in some cases far less.
Das is a Sydney, Australia-based risk consultant and for many years has been a leading expert on the use and abuse of credit derivatives. So after watching the world’s governments, businesses and consumers binge on cheap, borrowed money, and seeing central bankers and financial regulators doing little to stop it, Das decided this party would end badly.
Soft-spoken and matter-of-fact, Das told anyone who would listen that the global economy was on the precipice of a credit crash which would trigger a worldwide deleveraging and the mother of all bear markets for stocks.
That was in 2006. Five years and one global debt crisis later, those same governments, businesses and consumers are hamstrung.
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The five moves:
1. Invest in food and consumer staples
One way to take advantage of economic turmoil is to buy what’s scarce and what people need. Food — “staples of life,” Das said — fits the bill.
2. Buy energy stocks
In addition to agriculture producers, Das would own shares of energy companies, especially those involved with that other staple of modern life — oil.
3. Buy income-producing stocks
In a slow-growth business environment, shares of the “strongest and fittest” companies will be bid up, Das predicted. These stocks tend to pay dividends, and, said Das, people who are saving for retirement or already retired need “something that gives you cash flow.”
4. Take advantage of high volatility
Market swings have been extreme and day-to-day volatility is more common, reflecting the grim global conditions. As an investor in that situation, you have to be more nimble and expect the unexpected, Das said.
“Holding periods are going to have to change and become shorter,” he noted, which will keep volatility elevated. “You need to trap volatility in your portfolio,” Das said. “You need to have a trade which captures these massive swings.”
His advice: trade more often or, less expensively, buy out-of-the money equity-index options that pay off when stocks spike.
5. Keep a lot of cash
Cash won’t make you money, but cash is “useful” dry powder for opportunities that arise, Das said. In a miserly market, people with liquidity are the wealthiest players. “You can take advantage of things that can make you a lot of money,” he said.
And, Das said, with cash you can take advantage of a piece of market knowledge that other investors might not realize: You can go backwards, but there’s no going back to how it was.
“If you learn that lesson, that’s pretty much the most important,” Das said. “If you cling to the past and assume everything is going to be the same again, that’s a very dangerous place.”
Good article. Worth reading the whole thing:
http://www.marketwatch.com/story/5-money-moves-one-debt-crisis-expert-is-making-now-2011-09-29?pagenumber=2
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