How to Cash in on Ugly Markets

Just yesterday, I was talking to my kids about reputations. I told my sons it takes a long time to build up a reputation but it only takes one act of stupidity to destroy it.

Unfortunately, in life, most things are like that. The good things worth having always take longer to achieve.

Well, financial markets are no different…

The “prettiest,” positive markets happen when the global economy is firing on all cylinders. Inflation is under control. Unemployment is low. Corporate earnings are climbing.

That kind of market takes years to build. But that’s when you see year-long rallies in stocks, commodities and currencies.

Unfortunately, it only takes one serious correction to erase those kinds of returns. If you were invested during the 2008 crash, you know how fast those “pretty” markets can turn ugly. In fact, the single down year in 2008 destroyed the previous five years of stock returns.

Right now, I have reason to believe that we’re heading into another one of those ugly markets… one that could erase up to 20% of your stock returns if you’re not careful.

So what do you do? Sell everything and sit in cash? Sure, you could. But I would rather make money on the way down. In just a second, I’ll tell you how to do that.

One “Down Year” Took Away 5 “Good Years!”

Certain Currencies Drop Just As Fast in “Ugly” Stock Markets

In the Forex market, foreign currencies have the potential to rise and fall just as fast as stocks. The good news is foreign currencies are easier to short on the way down. Also, there are a few currencies that can protect you from this kind of crash.

Take a look at the Australian dollar below. The high-yielding Aussie dollar calmly climbed higher for six years… and then lost all those gains inside of three months. Check it out below…

What a Difference 3 Months Can Make

As you can see, ugly markets come on much faster than bullish, positive markets. So what makes “ugly” markets so much more powerful?

Unfortunately, when economies start unraveling, it can cause a domino effect.

When retail sales slow down, employers cut their payroll. So jobs are lost. When fewer people have jobs, they cut their spending. That means lower retail sales. That can cause even more layoffs.

It’s a vicious cycle. It can cause markets to unravel quickly. But that’s not the whole story.

Fear Grips Investors and Hastens the Downward Spiral!

Markets are made up of people, so human emotion can punish the markets even more once this downward spiral begins.

There are two enormously powerful forces in the world. One of them is “fear” and the other is “poverty.” But the only thing worse than both is “the fear of poverty.”

That’s what forces traders to dump their shares the second markets start falling. Traders suddenly become irrational. It’s like brains stop functioning, and our instinct for flight makes us sell everything, no matter what’s really going on.

As I write this, I’m seeing signs that this is already happening.

This past weekend, Italian regulators created a new rule to restrict traders from short-selling Italian stocks. Every time a government tries to stop traders from short-selling, it means they are panicking. It’s a government’s last line of defense to stop the markets from falling.

Unfortunately, everyone knows this. So all the regulators did was give traders another reason to dump Italian stocks. That’s why Italian stocks corrected very severely this week. As I write this, Italian stocks are crashing through crucial support levels.

This Italian correction bled over into other parts of Europe, and eventually us here in theUnited States. French stocks are now sitting upon a crucial trend line andU.S.stocks have corrected 2% in one day.

Again, this is the downward spiral I was talking about. It’s a self-sustaining vicious cycle. Right now, it’s time to take cover before it’s too late.

4 Currencies to Buy When Markets Turn Ugly

You may have heard “there’s always a bull market in currencies.” Well, that’s true – to a certain extent. But what it really means is all currencies are priced in other currencies. One is only worth something based on another. So as one falls, another rises.

As such, it’s impossible for all currencies to drop at the same time. Even during the worst stock market correction, certain currencies always rally.

For the most part, those are the safe haven, defensive currencies like the Swiss franc, Japanese yen, and yes, even the U.S. dollar.

In fact right now, the U.S. dollar is awakening out of its slumber and springing back to life. That’s not a good sign for stocks because investors only run to the world’s reserve currency when things are unraveling.

The other currency that continues to perform extremely well is gold. I’m talking about a long-term position in gold bullion or even certain gold ETFs. Either has the potential to rise in the case of a stock market correction.

Bottom line: a correction is coming. It may have already started. Take cover now with these four currencies that promise to rise as the stocks both here and abroad sink.

source from: forexnews