So much is happening so fast — and so few pundits grasp its true significance — I decided to send you this special afternoon edition to give you a heads up.
Here are the latest developments:
First, all three of the major Wall Street rating agencies have just announced — or are on the verge announcing — a series of downgrades of bond insurers. For example,
- Standard & Poor’s has just slashed its credit rating for ACA Financial Guaranty Corp. all the way from “A” to “CCC,” deep into junk-bond territory.
- Fitch has announced it may cut its “AAA” rating on Financial Guaranty Insurance Co (FGIC), saying the bond insurer does not have the capital required to warrant the top rating.
- Moody’s has just warned that it may do more — not only slash its rating of FGIC, but also cut the rating on three other leading bond insurers.
Second, as we warned over a month ago (see “Next Phase of the Crisis: The Great Ratings Debacle“), this is threatening to cause a chain reaction of downgrades of thousands of municipal bonds, corporate bonds and asset-backed securities, casting serious doubts on the entire $1.2 trillion market for those securities.
Third, even before these downgrades, major banks have already reported losses of over $100 billion.
And just this morning, Morgan Stanley admitted it was forced to take a write-down of $9.4 billion, nearly triple the amount Morgan Stanley itself had estimated only last month.
It was the first quarterly loss in the company’s 73-year history. And it just goes to show how rapidly the markets for these mortgage-based derivatives have been sinking.
Fourth, these developments have central banks so spooked, they’re busting all records in their efforts to pump fresh cash into the world banking system. The European Central Bank just injected $500 billion this week, the most in history. The U.S. Federal Reserve, the Bank of Canada, the Swiss National Bank, and the Bank of England are on the same track — running the electronic printing presses like there’s no tomorrow.
This Is What Our Entire Team
Has Been Warning You
About Issue after Issue.
Now It’s Happening.
Our team can’t anticipate every crosscurrent. Nor can we pick all the right investments all the time. We’ve made some mistakes — and we’re bound to make others in the future.
But all you have to do is read our issues over the last year, and you’ll see we were among the very first to warn you about what’s happening now …. explain why … and show you what to do about it.
We told you this credit crunch — plus the Fed’s response — would sink the dollar, and it did.
We told you it would drive international investors into foreign stock markets, and it did.
We told you central bank money pumping would send gold, oil and other natural resources through the roof, and it did.
We picked investments that we felt were most likely to soar in this environment, and they did.
Now, nothing has changed, except one thing: These trends are more intense; and the central banks’ reaction, more aggressive. If anything, all the forces we’ve been warning you about are gaining in power.
So if the dollar has rallied temporarily … or if natural resources have stalled for a while … or if we see further counter-trend moves in these markets … that’s definitely not your cue to change course.
Quite to the contrary, it’s you’re opportunity to continue pursuing the steps we’ve been recommending:
Step 1. Clear out of investments most vulnerable to this crisis — not just in real estate, mortgages and related financial sectors … but also in municipal bonds, junk bonds and other lower-quality debt instruments.
Step 2. If you can’t reduce your exposure in these investments, then buy inverse ETFs that are specifically designed to protect you against their decline. (For specific instructions, see my free report “How to Protect Your Stock Portfolio From the Spreading Credit Crunch.”)
Step 3. Stay on board with investments that we’ve recommended to help you transform this crisis into a major wealth-building opportunity.
Step 4. Be safe. As before, hold a nice chunk of your money in cash, invested in short-term U.S. Treasury securities or Treasury-only money market funds, such as
- American Century’s Capital Preservation Fund,
- U.S. Global’s U.S. Treasury Securities Cash Fund, or
- Our affiliate’s Weiss Treasury Only Money Market Fund
And, to balance against the risk of a sinking dollar, allocate some of your money to foreign currency ETFs, like Rydex’s Japanese yen ETF (FXY).
Good luck and God bless!
About Money and Markets
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Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Sean Brodrick, Larry Edelson, Michael Larson, Nilus Mattive, Tony Sagami, and Jack Crooks. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include John Burke, Amber Dakar, Adam Shafer, Andrea Baumwald, Kristen Adams, Maryellen Murphy, Red Morgan, Jennifer Newman-Amos, Julie Trudeau, and Dinesh Kalera.
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