Protecting Yourself From Coming Stock Market Declines

Last week, after Citigroup reported a net loss of nearly $10 billion for the quarter, the New York Stock Exchange had its biggest percentage drop for a January in 17 years. Between Monday and Friday, the DJIA dropped more than 670 points. The S&P and NASDAQ posted similar losses. This doesn’t look good. There is an old saying on Wall Street: “As goes January, so goes the rest of the year.” (And this has been borne out statistically.) My friend The Chartist Gnome is recommending that his clients get out of nearly all of their stocks–with just a few exceptions like gold and silver mining shares. I agree with him that in the coming recession the US stock market is likely to decline considerably, and possibly suffer a full-scale crash. FWIW, the Gnome says that expects to see a split sector bond rally in 2008. (With Federal bonds doing well, but municipal bonds plummeting.) Regardless, be ready for lots of instability in the financial and equities markets in 2008. As I often say, shelter hour assets in tangibles.

I often have consulting clients and SurvivalBlog readers mention that they have a good chunk of their savings “locked up” in 401(k) retirement savings plans. Most say that they cannot touch those funds without huge penalties. My advice to them is two-fold: 1.) If possible, convert your 401(k) into a gold IRA. 2.) If that is not possible, then at least direct your IRA portfolio into conservative investments. Currently, something like a Federal Bond Fund would probably be best.

Readers that hold stocks often ask me what “safe” stocks to buy and hold. My answer invariably is that there are NO safe stocks to hold in the long term.. Since we are entering an era where the viability of the dollar itself is threatened, then all investments denominated in US Dollars are at risk. Hyperinflation would wipe out any “gains” in your stock portfolio. Just ask anyone living in Zimbabwe what their “gains” have been in the past four years. When a currency is in freefall, nobody wins except a deeply-indebted government.

Gold IRAs are available through Swiss America Trading Company. I have had a gold coin IRA since 1998. Once established, these accounts are measured in an “ounce” value with a “Beginning Cost Basis” noted for when your dollars were first converted into U.S. Gold Eagles. In my case, the “GEB” (Gold Eagle Bullion) coins they put in storage for me cost $298 per ounce. The coins are physically stored by Goldstar Trust, a bonded vault company in Texas. The annual storage and administration fee recently got bumped up to $90 per year, but in my opinion that is a small price to pay for knowing that when I eventually cash out my IRA it will be in tangible form, rather than an investment vehicle denominated in dollars. I have no way of knowing how much the US Dollar will depreciate in the next 15 years, but it is pretty safe to say that gold will still have the same–or nearly the same–buying power that it does today. I strongly recommend that if you have an IRA or 401(k) account that you conduct a fund “rollover” into a Gold IRA.