Maybe this time it IS different, at least in scope and duration. I don't foresee soup lines, hammer and sickle flags, skyscraper suicides or apples for sale on Main Street, but this economic cycle could be more of a mess in 2009 than at present.
Recently I have been stung by the GMAC Bond debacle, the LandAmerica 1031 Chapter 11 fiasco which ensnared money held "in escrow and trust" from real estate transfers (I call myself a victim of fraud). Legal eagles may call me a mere unsecured creditor like hundreds of others who actually believed what the LandAmerica folks guaranteed in writing. We read and see scams being uncovered almost by the day, and there is some solace in that many others have fared far worse than I and probably you. And how about the $50b Ponzi scheme ravaging the "mansion class" that erupted Friday?
I think all of us are experiencing a year to forget, financially speaking. One exception may be the investors playing the double and triple short game. ProShares and their imitators had better get all the shekels they can out of their ETFs. I predict the SEC will eliminate or highly regulate them along with hedge funds and other casino-style investments in 2009.
My thoughts at present are to preserve capital and also follow the TARP. Consider investing in companies that the government is not going to allow to fail. For me, that means to buy bonds or preferred shares in selected ETFs as they offer a bit more stability and lots more income. Perhaps betting on individual bonds is too risky for the average investor. One may want to build a bond portfolio covering all the bases, more or less, with a definite overweight in government entities with a splash of foreign government bond exposure. As the current deflation is likely to give rise to significant inflation and a weakened dollar down the road, one would be wise to hedge for that probable occurrence.
Here are my ETF choices for this style of portfolio:
BWX: SPDR International Treasury Bond ETF priced at $51.77 and yielding about 3.25%.
CSJ: IShares 1-3 Year Credit Bond ETF priced at $98.91 and yielding about 4.25%.
SHY: IShares 1-3 Year Government Bond ETF priced at $89.91 and yielding 3.95%.
TBT: ProShares 2x Ultra Short 20 Treasury ETF priced at $42.58 and yielding 1.55%.
BSV: Vanguard Short Term Bond ETF priced at $76.14 and yielding 3.73%.
LQD: IShares iBoxx Inv. Grade Corp. Bond ETF priced at $94.51 and yielding 5.82%.
PFF: IShares S&P Pref. Stock Index Fund ETF priced at $22.75 and yielding 11.73%.
PFP: PowerShares Financial Pref. Port. ETF priced at $11.95 and yielding 12.85%.
I include TBT, PFF and PFP as a speculative spice for a heavily weighted bond portfolio. I am skeptical of muni's at this time because only the Feds can print money. Don't count on all of that anticipated tax revenue - muni's have a generally high yield for good reason.
Certainly, the astute speculator will be bargain hunting common stock with generous and sustainable dividends for accumulation. I will visit this topic (again) in the near future. In the meantime, expect the real estate foreclosure rates to continue to climb, credit hard to obtain, politicians without a clue attempting to run American commerce and international surprises to impact our actions when we least expect it.
Importantly, manage your life in a prudent fashion. Personal saving and thrift -lost arts- should be in your game plan.
FULL DISCLOSURE: THE AUTHOR MAINTAINS A POSITION IN EACH ETFs MENTIONED ABOVE.