Uncertainty rises and the Dow plunged this week. We got more Wall Street firms and banks reporting more “write downs”. On top of that, Cisco Systems reported that corporate spending on computer equipment may falter.
One of the world’s biggest banks, Citigroup lost 11 billion dollars in value recently. It seems that every day you turn on the T.V. there’s another bank write off of more billions of dollars.
With all of these “unknowns” in the market, professionals are selling every rally so far. The Dow Jones Industrial Average has made a new “lower high”. It has also closed below its 200 day moving average. That hasn’t happened in over a year and a half. This means that many long term investors are under water for the first time in a long time.
When the long term investor starts losing money, the mood of the market can change rather quickly. It starts to make them question their positions. So when they turn on the news channels and see more “doom and gloom”, they may be quicker to sell their positions. These tend to be larger holders of stocks. When that happens, it can cause a massive sell off when it finally starts its ripple effect.
We saw the very beginning stages of this happening this week. See the chart below.
When this happens, the Japanese yen thrives off of it. It’s been so beaten down for several years. When money gets scared it runs to this beaten down asset. (See the chart of the Yen below.) When times get shaky, it acts as fuel to a fire for the yen.
So if you’re looking for a way to hedge your Dow portfolio, the yen could be a serious consideration. Picture them on opposite sides of a seesaw. When the Dow goes down, the yen goes upwards. When the Dow’s drop is severe, the yen’s ascent is pronounced also. 
So in these shaky times, be sure to consider a defensive play. It’s nice to be offensive in your portfolio, but every football team needs both. So does your portfolio.
If you are only “long” U.S. stocks, then you’re not very well diversified. With the dollar falling off of a cliff, the value of the stock returns will be eroded. This is one reason why Warren Buffett has started to invest in foreign currencies. In this day and age we live in, it has just become a must.
Sean Hyman
Currency Director
P.S. – If you’d like to find out how to get away from the dollar and “defend” your portfolio, contact the team at The Sovereign Society and they can show you many ways to get defensive with your portfolio.
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