A Contingency Plan If the Market Breaks Down

by: Roger Nusbaum

Roger Nusbaum submits: Robert Arnott was just on CNBC calling for 2-3% earnings growth per year for the next five to ten years, below, he says, the rate of inflation. This will result in a bear market but he did not quantify the magnitude of this bear he sees which I attribute more to the questions asked than anything else.

I see no reason to try to counterpoint his idea, it will be right or wrong. I think there is more utility for do-it-yourselfers to instead think about what they would do if it ever starts to look like he will be right. He likes TIPs and Local Market (foreign bonds) bonds.

I would also think that, relative to equities, the myriad of dividend ETFs might make sense. I also think the Currency shares, especially higher yielding products also might do well (the idea is a bear market combined with the Fed lowering rates would cause a decline in the dollar). Foreign stocks from countries that don't export consumer goods heavily to the US, here Sweden, Chile, Australia come to mind first, might work. I think staples would stand up too. One last one I would mention is certain emerging markets that are in their own world in terms of their growth stories. Here I think of places like Hungary, Poland, Iceland and Vietnam. To be clear these countries have their problems but they are not too dependent on the fate of the US.

This is just meant to be something to put on the back burner. Arnott's scenario is not unfolding now. But it is kind of a dour outlook from a smart guy. There is nothing wrong with thinking about what you would do now while there are no emotions clouding your logic.