Are you ready for "riots in the streets, arrests on an unprecedented scale, and martial law?"
But if you've watched Porter Stansberry's "The End of America" video, you might be nervous that this scenario is just around the corner.
Some of the points he makes are valid, though others are clearly hyperbole. My column today will help you sort through which is which, and offer some investment ideas to profit if a pullback does come.
"An even bigger crisis is lurking"
Stansberry's core argument is sound. He points out that the problems that devastated our financial system have not disappeared -- they've simply moved onto the U.S. balance sheet. And as most of us know, this balance sheet wasn't in the best shape to begin with.
However, because our country can pay its bills so long as it can continue printing money, and so long as the U.S. dollar remains the world's reserve currency, all is fine and dandy.
The crisis would come when the rest of the world refuses to accept payments in U.S. dollars, or refuses to pay for things like commodities with U.S. dollars. Stansberry asserts that this is already afoot, and there's some truth to this belief -- although it's not quite as dire as he would like you to believe.
Yes, there are talks of a "global reserve currency," and big U.S. debtholders like China are diversifying away from Treasury bonds. But it's hard to make the case that the U.S. dollar will disappear as the world's reserve currency within the next few months to a year, as Stansberry predicts.
Even so, you can profit
Even if the rioting and looting don't actually come about, another market downturn could still arrive. Thus, you should begin to think of how to protect your portfolio, and profit from any pullback.
Although Stansberry won't reveal all his suggestions for free -- he's trying to sell subscriptions, after all -- I was able to reverse-engineer a few of his recommendations.
One of his favorite investments to protect you and your family is to purchase a working farm. While the dreamer in me agrees (it's my long-term goal to retire as a hobby farmer), and to a certain degree this does make sense, I think this investment is outside the realm of most investors.
He also recommends that investors buy gold and silver. It's clear he's partial to gold coins and physical precious metals, as opposed to the SPDR Gold Trust (NYSE: GLD) and the iShares Silver Trust(NYSE: SLV).
Unfortunately, physical assets are much harder to sell -- meaning that even if they offer a form of protection, it's impossible to make money if you can't find a buyer, or if you have to pay a commodity broker a hefty commission.
One alternative to ballast is to purchase financially sound, dividend-paying large caps. Many of these actually increased dividend payouts over the recent downturn. I'm reasonably confident that some could do the same through another downturn.
Here are five companies I would look into that either maintained or raised their dividends through the last downturn:
Current Dividend Yield
5-Year Compounded Annual Growth Rate of Dividends
|Yum! Brands(NYSE: YUM)||$25.1 billion||1.9%||33.1%|
|Texas Instruments(NYSE: TXN)||$38.7 billion||1.6%||35.4%|
|UnitedHealth Group(NYSE: UNH)||$52.2 billion||1.4%||75.5%|
|McDonald's(NYSE: MCD)||$83.7 billion||3%||28.2%|
|IBM(NYSE: IBM)||$199.5 billion||1.8%||26.6%|
Data from Capital IQ, a division of Standard & Poor's.
Another tactic he advises
The final strategy Stansberry recommends seems to be an options strategy. Based on various quotes he provides, I'm pretty sure he's advocating selling put options.
He touts this strategy as an easy way to pocket 100% gains over and over again without ever touching a stock -- which is technically possible. However, there are risks that he glosses past.
By writing puts, you get paid a premium for agreeing to buy the underlying stock if it falls below a certain level by a given date. You can probably guess where the problem lies -- if the stock falls drastically below the agreed-upon price, you can get wiped out.
This doesn't mean you should dismiss writing puts altogether. But it does mean that you should be judicious about which companies' stocks you write puts on.
Even Motley Fool options experts Jeff Fischer and Jim Gillies admit that selling puts can be a great way "to seed a portfolio." With the right trades, it can be a lucrative way to add a steady stream of income to your portfolio. It's also a great way to secure lower prices for stocks you find attractive.
If you are interested in receiving more information from The Motley Fool about investing in options, please click here. And be sure to stay tuned for more options content from the Fool in the days and weeks to come.
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