Leif Peterson

How to Construct a Deflation Proof Portfolio

This is a great article, and for many reasons is timely because it addresses deflation -- which will likely be the primary issue for the next 5-10 years. Right now, the US economy is truly (not essentially or effectively) a bottomless pit for which very few are broadcasting the problem. Don't worry about doom and gloom; that was passed a while ago. It's more like the second great depression is already here but is unobservable. If you had an over-the-horizon backscatter radar for the economy you would probably run.

Regarding the inverse ETFs mentioned, one must realize that due to extreme volatility in today's markets, these will sell in a heartbeat if stop loss is not set at at least -20%. However, there will come a point where an equilibrium is reached and e.g. large mutual funds won't be able to unload equities so that their price drops to zero, because they can't zero out customers retirement accounts. I truly believe you can't short a stock to zero, especially one of the ^DJIA-30. (here, I am speaking about the millions of clones who continue to contribute to mutual funds through their employer and never bother checking how things are going).

When compared with the huge losses in equities and home values since 2007 (several trillion), costs of ongoing wars, derivatives, hedge funds, greed, over-leveraging, auto industry, the bailouts are not even a blip on the radar scope. That, plus the fact that only a fraction of the bailouts will reach the consumer is all the more reason to become concerned. Don't take my word for it, start studying on how to profit in times of deflation. Currently, I am long Fidelity Treasury (short-term) Money Market (FDLXX), US Dollar Bull (UUP), Japanese Yen (FXY), Chinese Yuan (FXI), China Mobile (CHL), Exxon-Mobil(XOM), and USCOX. I believe most equities are going to crash and burn much worse in the months to come, and think UUP will explode throughout 2009 and 2010. Happy Trading!