The latest quarterly GDP reading just came in for the U.S. It was a paltry 1 percent. That means we are coming uncomfortably close to another recession again as our economy starts to stall and coast.
I’ve told my Money Matrix Insider members that I believe that we will be in a recession soon. How soon? It will likely be one to three quarters away.
So by mid-2012 or sooner, we’ll likely be in a full-blown recession.
Before the last recession started, unemployment levels were in the 4.5 to 5.5 percent range. Right now we’re at 9.1 percent. That’s a horrible starting point for the next recession. That’s the worst part about what I see coming. We haven’t had time to recover from the last recession before the next one gets underway.
How much do I buy into all of this? Well, I’ll tell you this much. You guys who have been reading my stuff for a while know that I love my muscle cars. However, I just sold my 1969 Corvette Stingray convertible on Saturday and I’ve got my 1967 Camaro up for sale now — I bet it will sell within days to weeks. I’m going to use the proceeds to finish paying off my house.
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So that should tell you how much I believe in what’s coming. When I sell those cars which were so dear to me to make sure that I literally have no outstanding debts going into this recession— not even my mortgage — that tells you something.
Besides, I think it could get much worse before it gets better, so I’ll be able to pick up some other muscle cars on the cheap in the heart of the next recession like I did in the last recession.
But enough about my love of antique cars, let’s get back to what’s coming and how to profit from it since we can’t stop it anyway.
I anticipate once the recession hits that it will take at least a full year to come out of it. (The last recession ran a year and a half in length before its recovery . . . that never fully recovered.)
As the GDP of the U.S. (and global economy for that matter) slows down, the demand for oil will slow down. As it does, the price of oil will continue to slump. As this happens, the oil-exporting countries will take it on the chin . . . and so will their currencies.
Well the currency that will be “front and center” as all of this happens will be the one that is the biggest supplier of oil to the U.S., which is Canada.
Canada’s dollar is very sensitive to the price of oil. They track each other well and produce a very high correlation to each other. So as you can imagine, as the economy slows down and oil prices take a hit, so will the Canadian dollar.
Therefore, to take advantage of the slump in the economy and slump in oil prices you could short the Canadian dollar since it will take a hit right along the price of oil.
In the spot forex market, you can buy other currencies against the Canadian dollar and accomplish this or you can short the Canadian dollar ETF in your stock brokerage account.
Either way, if you believe as I do that a recession is coming to the U.S. and global economy, then this is a play on that.
You or I can’t stop a recession. I hate that they happen and I know you do, too. There’s nothing good that can come out of one except for draining excesses out of the economy. But for the most part, we see jobs, homes, and cars lost.
It’s a horrible thing to see happen to friends, family . . . even to strangers, quite honestly. I wouldn’t wish hard times on my worst enemy, and I know you wouldn’t either.
However, just because we are powerless to stop it from coming, that doesn’t mean we aren’t powerless from protecting our portfolios against the harmful effects of a recession. The damage a recession does to the average IRA or 401(k) can tack on many extra years of working before a person can retire.
However, if you short the Canadian dollar as the economy slumps and takes oil prices lower, then you are taking a proactive stance against the negative pull of the economy and fending off at least part of the effects that the recession could have on your overall stock portfolio.
Begin to prepare now before things really get worse and everyone realizes how bad it will get. The key is to make these changes in one’s portfolio before everyone else does. That way, you have the maximum potential for profit.
So while I’m negative on the economy right now, I am optimistic in our ability to fend off its effects through positioning our portfolios into what will weather the economic storm the best.
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