Sometimes obvious economics can lead us to profitable investment strategies. I think a few such opportunities exist right now and I’d like to share them with my readers. If you have other ideas or comments on mine, please share. Why pass up a potential way to make money?
First, one might consider becoming bullish on the US dollar. Two contributing factors to the dollar’s recent weakness have been the extended period of low interest rates and the enormous trade deficit we run here in the US. Because of how bad inflation is right now, it’s more than likely the Fed will raise rates at one of their next meetings. This action would curb inflation by making dollars more expensive to borrow. The lower supply of dollars will raise their value against other major currencies such as the Euro and the Yen. Further, if we eventually reduce our reliance on foreign oil, which seems just a matter of time, we can avoid currency-weakening behaviors such as buying hundreds of billions of dollars worth of oil from Middle Eastern countries. Some of my readers may not realize that the commodity boom which we’re currently in is fueled by a weak dollar. This bubble would more than likely pop with some strength in the greenback. It’s also likely that our trade deficit will start to turn during 2009. Foreigners have recognized the opportunity to buy goods such as real estate and clothing at a steep discount. This usually evens out the trade balance after a few years.
Second, consider putting together a portfolio of alternative energy stocks. Does anybody really believe that oil prices are going back down to where they were five years ago? Even if they were, I think the case for alternative energy would be just as strong. Economics show us that developing countries, specifically India and China, will consume more oil in the future. For societies to move forward, they must have constant sources of energy, preferably those which are cheap, clean, and safe. Oil doesn’t pass that test in my eyes and it remains the most popular energy choice by far. Where can you invest? Try solar, wind, and nuclear power. We could discuss each of these sources in terms of their price and efficiency, but they’re all pretty good. Think about electric. It’s not expensive nor does it pollute the environment the way burning fossil fuels does. If you like this idea, be careful about how you speculate on the sector. It seems prudent to purchase a fund or trust which invests in a diversified group of alternative energy companies with proven earnings histories. This may be a safe play from a risk/reward standpoint.
Third, consider how you can make money from demographic shifts. Specifically, we have millions of baby boomers, the first round of which started retiring during 2007. Certain industries will undoubtedly benefit from this. Which sector do you think or believe will grow faster; automobile producers in the US or healthcare firms which manufacture drugs, manage health care plans and own hospitals? What else might the baby boomers spend their trillions on from 2010 to 2020? Maybe golf? Real estate in Florida? Long-term care facilities? Probably all of the above. We’ve also been seeing a trend in the US of smaller families. This has been following fears about the dramatic costs of raising children, saving for education and not ending up broke during retirement. Might the producers of high-end baby clothing and accessories struggle a bit? It would make sense. The point is that we have official statistics about demographics. We should be able to make logical deductions by studying these things which give us an advantage over just throwing money into random parts of the market.
These are my ideas for the day. Implementing them properly requires doing a little homework. Always diversify your portfolio so you don’t take on too much risk in any one area. When picking your investment products, you may also want to consider those which are inexpensive and liquid in your search.
If you need help, feel free to e-mail me!
Russell Bailyn
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Wealth Manager
Premier Financial Advisors, Inc
14 E 60th Street, #402
New York, NY 10022
P: 212-752-4343 *31
F: 212-752-7673
rbailyn@premieradvisors.net
Securities and certain investment advisory services offered through: First Allied Securities, Inc., a registered Broker/Dealer. Member: FINRA/SIPC. Premier Financial Advisors, Inc. is a Registered Investment Advisor. First Allied Securities & Premier Financial Advisors are not affiliated entities.
The above information has no regard to the specific investment objectives, financial situation, or particular needs of any specific recipient, and is intended for informational purposes only and does not constitute a recommendation, or an offer, to buy or sell any securities or related financial instruments, nor is it intended to provide tax, legal or investment advice. I recommend that you procure financial and/or tax advice as to the implications (including tax) of investing in any particular product.