Tuesday, 20 December 2011

Preparing for 2012

This post has a theme to which we have turned before, but as I have still not come up with a good answer I wanted to ask everyone again what should we be doing to prepare for 2012?

It seems very likely that Q1 is going to see a eurogasm of some sort, with a high chance of Greece and maybe others exiting the zone. If this turns into a monetary conflagration that engulfs all of the Euro area and the US then all bets are off as to what to do.

Gold Bugs get very excited by this scenario and say their lovely metal will appreciate - of course, 2008 shows us that when people need to liquidate to cover losses everything is correlated and falls in tandem. Others recommend divi stocks and bonds with pay RPI +1% as these are a good guarantee against inflation - that maybe so, but how do we know the underlying companies will keep up payments when inflation is double digits?

Clearly, bank stocks are a complete no no and stocks in general will get whacked in any type of shake out. Commodities too look primed to correlate with any fall.

This really does not leave me with much to look at - Long Norwegian Kroner, long agriculture soft commodities? It is certainly a toughie, but at least 25% of next years portfolio is going to be allocated to eurogeddon protection - but what should that be?


Nick Drew said...

plus - for any type of financial instrument (indeed anything that might require assertion and enforcement of title), where are you going to hold it ?

what with hypothecation 'n all ...

Budgie said...

Back in April, when some eurosceptics started to say the euro was doomed any minute now, it seemed obvious to me that they were thinking with their hearts not their brains.

Nine months later the euro is still with us, and will still be here in a year's time. Yes it may be slightly different: more central direction, a couple of countries out probably.

Either, or both, Greece and Eire may drop out of the euro over the Christmas shutdown and into another currency - obviously the $ or £. That way the panic and devaluation can be limited. After a couple of years they can convert to their own currency or re-enter the euro.

To keep the euro going all Merkel has to do is hoodwink the German electorate - easy. All Sarkozy has to do is put VAT on financial transactions and get the UK to pay - easy. We've already bailed out the euro to the tune of £50 billion (£40B to the IMF, £10B to Eire), I am sure Cameron is stupid enough to be touched for another £50 billion. Job done.

Mr Ecks said...

Job done nothing.

50 Billion?--a drop in the ocean. The western world is bankrupt with debts it cannot pay.

Events take their time to reach a point of catastrophic, irreversable change. Europe could have kicked off into war many times before August 1914. But it did kick off eventually. The Euro will fall.

andrew said...

Something that I have been puzzling over.

I think the death of democracy in the eurozone is more likely than the death of the EUR.
In 2012, I think Bonds and Shares and Commodities will be v.v.v. volatile (and correleated) and 2 weeks timing on entry/exit can make the difference between +10/-20% over the year. A bit like this year but more so.

I suggest three things

1 - Stamps, Wine - not gold

Something small, fairly valuable, easily disposable that you can actually keep in the basement.

In the spirit of if things get really that bad, at least you can drink it or send a letter to Santa.

2 - Broad-based companies that are the size of small countries but have a better credit standing

IBM / Microsoft / BMW / Total / Unilever ?

In the spirit of if there is a flight to quality - what better place apart from the CHF which is already far to high.

3 - Large foreign companies that dont have a large first or second-order dependance on Europe

SAB Miller / RTZ / Samsung ?

In the spirit of Europe sunk, who cares?

My paranoia says (1), my head says (2) but my investments say (3)

Budgie said...

Mr Ecks - £50 billion on top of the £50B we have already payed is not a drop in the ocean, it is the majority of our current year's deficit. Add in Merkel's contribution and Sarkozy's Tobin tax, as I noted, then the figure climbs appreciatively.

Nor was I being exclusive. I am sure that when the money starts flowing the USA and China amongst others will hop on the bandwagon. After all who wants to be seen to cause the world financial system to crash?

Phil said...
This comment has been removed by the author.
CityUnslicker said...

Budgie - I do not posit that the Euro will not exist. it will do, even if is just another name for the D-Mark in the end.

All I forsee is that an exit will happen and I do not know whether that will lead to a contagion with multiple exits or whether that will be the jolt that makes ther Germans realise the situation and do something about it.

It is hard when the good/bad scenario's are quite balanced - for good will look very good for a while in a world of extreme liquidity and high inflation. Bad will look like Hades.

Steven_L said...

I still reckon the AUD will crash in a global recession II. Interest rates may have peaked there and China is slowing down. So I'd still go for a short AUD/USD as a general hedge against a slump/crash.

WTI Oil could easily be sold down to $75 again. How about some out of the money puts?

Then there's shorting heavy manufacturers like GKN. Won't their order books dry up?

Steven_L said...

Or I was thinking about pairs trading long T Bonds / short Bunds?

dearieme said...

Good agricultural land in well-watered parts of the world not at too much risk of damage from another "Little Ice Age". Probably that means "buy Tasmania" and perhaps New Zealand.

Nick Drew said...

Steven - you haven't addressed the question: how can you be comfortable with purely paper instruments like all your selection, WTSHTF ?

Steven_L said...

Well, I could clear out my spread betting account and buy three gold sovereigns!

The £850 I've got entrusted to Mr Spencer is simply my 2012 holiday fund.

IFSHTF and Mr Spencer defaults on me I'll have to settle for a cheap week in the canaries.

If on the other hand I can win a grand or two off him I'll go somewhere nicer.

We're not talking millions here ND!

Steven_L said...

If you want a 'safe' investment, get down to Tesco and ASDA and buy a shed load of single malt on loss leader!!!

Hopper said...

I like Steven's idea. Wine and beer - vineyards and brewers. If the world goes to hell in a handbasket, people will still need to drink. Not so sure about premier wine holding its value in the short to medium term.
(This is not a trading recommendation, do your own diligence, E+OE etc.)

andrew said...

Better yet, buy a still and some potatoes!

What worries me is that no-one is really willing to make a suggestion (even in jest) and knowing that no-one will remember in 6 months time if they were right/wrong.

Anonymous said...

"I wanted to ask everyone again what should we be doing to prepare for 2012?"

Cash. Until this round of deleveraging is over. Then tangibles; surviving bank stock - perhaps too early, utiltities, land.

Wordverification: Caution.

Anonymous said...

Andrew: "Better yet, buy a still and some potatoes!"

Yeast and Sugar, oh! and calor gas. Potatoes are too bulky and can go off quickly.

Timbo614 said...

Having just scanned the news - yes I know its late - I suggest Riot Shield and Rubber bullet makers plus maybe a dash of water-cannon companies.

We can then sit back and watch the Euro-zone's almost non-existent democracy vanish and turn a profit on it :(

Other than that, stuff that will be useful, stock up on long-dated shopping and of course planting veg.


BrianSJ said...

Some interesting ideas from Rosie at http://www.zerohedge.com/news/david-rosenberg-difference-between-buy-and-sell-sides-and-what-he-investing-right-now