I am retired and take educated guesses on all things financial.

May 01, 2007

May 2, 2007: Terror risks and the market - a disconnect waiting to blow up.

"Useful idiots" - Stalin

It is so obvious, yet so ignored by western financial markets and the usual far left crowd on the street in 2007: TERRORISM.

What one large act or series of coordinated acts can do to negatively impact stock markets and financial systems in civilized societies is immense. We are presently in a Goldilocks economic scenario. Low interest rates, booming stock markets, huge international trade. In short, the good life. Even the poor have never had it so good.

But do a google search with the phrase "terror risks 2007" and you will see the tip of the iceberg headed our way. Some headline grabbers include Terror Risks of Nuclear Fuel, Chlorine Bombs Pose New Risk, Worries of Terrorism on Asian Shipping Lanes, Terrorist Risks in Constructed Facilities, Terror Risk on Waterways,Terrorist Risks from Unmanned Aircraft, Shopping Malls Weigh Terrorist Risks.......

Of course, many google sites examined placed the blame for terrorism at the feet of the United States, and especially the President, G.W. Bush. But that is not my point of contention for today. The point is,

Markets are not factoring in the increased likelihood of a major terrorist attack on the West, and specifically the United States. I believe that investors had better reckon that a major episode of terror is not if, but when and need to take prudent investment steps to both profit from the current terror-denial attitude and to recognize that it is likely this delusion is false.

I think that Proshares double shorts are a vastly under utilized form of portfolio insurance. Take your pick ( like the NASDAQ 100 double short.

Invest overweight in countries that do not tolerate terrorism or dissent within their borders. China, Russia, Malaysia,Singapore, Iceland, Sweden,Norway, etc.And place some assets in currency (Swiss Francs via the ETF) and metals (gold, copper again via a Fund). I like Swiss stocks and Singapore stocks because they have a blind eye to assets within their country and thus would probably not singled out for terrorist acts.

US Treasury Bills or GE Interest Plus are good stores for cash.

How much of your portfolio should be in the above? Pessimists, perhaps 25%. Optimists, perhaps 15%.

I am not recommending that you consider buying a gun, dried food and heading to the hills. I am bringing to your attention a scenario so obvious we are looking through it, and seeing nothing.

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