Credit Crisis Brings 'Once in a Century' Opportunities
Thursday, September 18, 2008 | Marie Albin
And the hits just keep on coming. With the Fed now turning its attention to finding a suitor for beleaguered bank Washington Mutual (WM) and Morgan Stanley (MS) – who advised the Fed on its bailout of AIG (AIG) – reportedly seeking a merger partner, the fallout from the credit crisis is far from over.
The government’s $85 billion bailout of AIG brings the total of U.S. rescue efforts from the credit crisis to a whopping $900 billion. With any luck, the government will be able to recoup most of what it has doled out, say most analysts. Fingers crossed.
Luckily, Fed Chairman Ben Bernanke is a student of the Great Depression. His actions have been widely lauded as the best one can do under the circumstances. After all, he has a lot of cleaning up to do after the lack of regulations left by his predecessor, Alan “The Maestro” Greenspan, who is quickly becoming suspect No. 1 for creating the mortgage debacle.
The credit crisis has far-reaching implications throughout the entire economy. Loans to businesses and individuals will be harder to obtain, resulting in a slowdown in business spending and consumer spending. The housing market will likely stagnate even further than it already has. The economy as a whole could slip into a recession.
But the American economy, like its citizens, is resilient. Greenspan characterized this crisis as a “once in a century event.” At Tycoon Report, we believe that the buying opportunities that will appear after this shakeout is over will be a once in a century event as well.
The financial companies that survive this crisis – investment banks, banks and thrifts, and insurance firms – will no doubt be radically changed when this is all over. But they will also likely be at bargain prices not seen in decades. And, as we all know, the market tends to throw the babies out with the bathwater in panic times like these. So there will likely be profit opportunities across virtually every sector.
Tycoon Report readers, you need to be ready to buy when the time is right. To do that, you need to make sure that you have cash available to invest.
Cash is King
Keep your bank deposits safe. So far this year, there have been 11 bank failures that required FDIC coverage of depositors’ funds. Don’t panic. The FDIC is not going to blow up. But make sure that your deposits are within the insured limits. Chris Rowe wrote a great article about protecting deposits over the FDIC limits. Check it out, if you haven’t already.
[Editor's Note: Chris Rowe's Trend Rider just opened two trades that are set to profit from the financial fallout. Go here now.]
Consider Treasury-only or Government-only money market funds. Reserve Management Co. reported that its Reserve Primary Fund has “broken the buck” – a term used when the fund’s assets fall below $1 for every $1 invested (dollar net asset value). Retail money market funds, unlike Treasury-only money market funds that are backed by Treasuries, can hold commercial paper and asset-backed securities. (Government-only money funds can invest in securities of the U.S. government and government sponsored entities.) Again, don’t panic. This has only happened one other time in the history of money market funds. In almost every case, the parent company of the fund will infuse the money market fund with cash to maintain the dollar NAV. Nevertheless, if you have the option of moving your money into a Treasury-only money market fund, consider doing so.
Foreign currency CDs. If you are concerned about inflation eating away the buying-power of your cash, you could hedge your U.S. dollars with foreign currency CDs. Everbank offers foreign currency certificates of deposit that are FDIC insured. Remember, however, that fluctuations in the currency can impact the return you receive on these accounts. You can check out the various interest rates that Everbank offers at its site.
So, keep your assets safe in times like these. Pare down your debts and keep your personal balance sheet solid.
We will keep you posted in the coming weeks and months as to where we see the best long-term profit opportunities for you to add to your portfolio. Stay tuned.
In the meantime, how are you reacting to the current panic on Wall Street? Leave your comments below.
(Please let us know what you think about Marie Albin's article.)
Rate his article here »
Rate his article here »
Marie Albin
Chief Investment Officer
<