Don’t Accept the "New Normal"

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Published on Friday, 17 August 2012 14:38

Written by Sara Nunnally, Editor, Inside Investing Daily

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The investing world is changing fast. That means it is time to change your strategy. Here is one profitable angle worth exploring.

Earlier this week, I told my Macro Trader subscribers that I was a bit of a contrarian on China. Many analysts believe the country is in for some really rough times -- a hard landing after decades of screaming growth.

I don't think so.

(You can read my full opinion in my latest Macro Trader letter here, for members only.)

But one of the more interesting things I found during my research is that local investors don't want to invest in the country's stock market. No wonder, with China's markets declining more than anyone else's so far this year. Indeed, listen to this, from Bloomberg:

Falling valuations aren't enough to entice Yao Lina, a 32- year-old accountant in Shanghai who sold all her stock holdings in February and withdrew 80,000 yuan ($12,580) from her trading account. She has no plans to invest in equities, saying the government may take as long as five years to fix "structural" challenges in the economy that have curbed growth.

"I have no confidence in the stock market," Yao said by phone on Aug. 8.

Instead, she is putting her money in real estate. Others are putting money into wealth management products and bonds. In fact, wealth management products accounted for 60% of the value of Chinese companies' market value!

Trading volume on the Shanghai Composite Index is just a shadow of what it was late last year.

But this kind of weak volume isn't contained to just China.

From CNBC:

Declining volumes on global stock markets appear to show that real money trading activity is at decade lows, according to a new report from Credit Suisse, and investors believe volumes will stay low for two more years unless global resolutions to the risks of the economic crisis are found.

Credit Suisse's report on trading activity shows that over the past four years, volumes in equity markets have been steadily falling and are now at half the level seen in the middle of the credit crisis -- and traders fear they could get worse.

Why is that? Because investors are scared. They know something big is in the stars for the global economy. The U.S. is heading toward its fiscal cliff, the EU is in danger of losing some members and its currency, and China's growth is slowing to its lowest level in nearly three years.

"Almost half of the responses said macro-risk needs to be resolved before trading activity is up... This is consistent with the popular view that macro risks are a key factor in decreasing investor risk-appetite -- including European defaults, recessions, the U.S. fiscal cliff and its own deficit," said the Credit Suisse report. "It's unlikely all will be resolved in less than a year."

Most people shy away from the words "the new normal." I don't blame them. It implies a certain helplessness -- that you can't do anything about the economic situation.

In reality, we can't do too much about the global picture, but we can take control of our own circumstances.

To combat this "new normal," we're going to have to think outside the box.

Things like currencies, farmland, frontier markets... gold coins, foreign accounts, self-directed IRAs.

In short, everything we've been talking to you about for the past year and a half.

Take the new EverBank MarketSafe Emerging Market CD. I just got an email this morning detailing how investors can buy the Colombian peso, Israeli shekel, South Korean won and Turkish lira, all at once with 100% of their principal protected and no ceiling to the gains that you could make.

Over the past six months, this is how each of these currencies performed against the dollar.

View larger chart

These gains aren't easy to make, given all of the false strength in the dollar from the euro weakness.

You can learn more about this CD here, and I hope you do take the time to look it over. This kind of out-of-the-box thinking can lead to some really great opportunities.

Happy Investing,

Sara