Where to put your money when everything’s going down the pan

I was really pleased by the incredible response to my email earlier this week.

It would seem that you have been waiting for something just like this – an intelligent strategy that can perform across markets and can adapt to the ever-changing economic climate.

And I know that the system I use will not disappoint.

If you missed the video, it’s still online here. But I’m going to have to close the doors on the Priority List very soon – there’s really only so many people that I’ll be able to cope with!

I’m putting together more details that I want to show you next week.

In the meantime … it’s been a busy week on the markets, and lots to keep us thinking and worrying about where to put our money …

Recommended reading

If you’re looking for a bit of light reading over the weekend, forget the latest John Grisham or Martina Cole … top of everyone’s reading list this week has been the IIF Default Report.

Okay, it’s not a very catchy title, and it probably won’t make it to the front of those tables by the door in Waterstones …

But, it’s always nice to get your hands on something that has “Confidential” stamped across the top.

Very James Bond.

And, as storylines go – this is stomach-churning stuff. Enough to scare the pound coins right out of your pocket and under the cushions at the back of the sofa.

The figure that’s been giving me nightmares all week is …

… the contingent liabilities exceeding 1 trillion euros …

In plain speak – that’s how much it’ll cost us all if Greece defaults.

If we want to make money … hell, if we want to simply hold on to what we have … we’re going to have to be smarter with our investments.

How bad is it?

The report I’m talking about was penned by the Institute of International Finance to be circulated exclusively among eurozone heads of state, finance ministers and top bankers, and was leaked to Athens News last week.

Here’s the gist of its predictions for a default …

• For starters, Greece fails to honor payments on its 368 billion euro debt.

• Greek banking system collapses.

• 359 billion euros of other Greek bank debts are put in jeopardy

• Bail-out funds would be required to recapitalize banks in the euro area who hold Greek debt to the tune of 160 billion euros.

• The ECB has exposure to Greece of as much as 177 billion euros

• To avoid contagion to Portugal, the report estimates the cost to be 16 billion euros annually to 2016. Plus, managing the 330 billion euros owed by corporates and households to domestic banks and the 220 billion euros owed by Portuguese banks to foreign lenders.

• Then comes Ireland …

• And Italy …

• And did I mention Spain …?

• And the rest of the world …

“Each percentage point that a disorderly Greek default might clip off the level of Euro Area GDP would amounts to annual income foregone of about €100 billion. In turn, this would lower annual government tax revenue by about €100 billion.

“The Euro Area accounts for about 19% of the world economy. If the loss in Euro Area GDP were to have a multiplier effect on the rest of the world of a similar proportion, then each percentage point lost in Euro Area GDP would translate into an income loss elsewhere of about €90 billion.”

Oh heck.

I’ll be expecting a few locusts … frogs raining from the sky … and a river of blood lapping at the back door before long.

But before we stock up on tins of beans and lock ourselves in the cupboard under the stairs, it’s worth noting an important word in this report …

… disorderly …

These are predictions based on a “disorderly default”.

So, what’s the difference between an “orderly default” and a “disorderly default”?

Presumably, one involves waiting patiently in lines, while the other involves pushing, shoving, and perhaps even some shouting.

I found some useful advice on the “rant site” Left Business Observer, posted way back in 2002: How to default: a primer.

It’s billed as an “introduction to default aimed at presidents, finance ministers and their advisors”.

I hope that Lucas Papademos has read it.

Debt default ought to be considered one of the most important policy weapons in the arsenal of any developing country sufficiently creditworthy to have international bonds outstanding. It has much to recommend it over IMF austerity programmes: it’s available immediately, and the burden is borne mostly by foreigners.

It sites the Palmerston doctrine of 1848 as the first theory of sovereign default …

“[I]f investors chose to buy foreign bonds with a yield of 10 per cent rather than British government bonds with a lower yield, they should not expect as a matter of right that the British government would intercede on their behalf in the event of a default”

(i.e. Anyone owning Greek bonds brought it on themselves.)

It then goes on to give us a list of what you need to do for an orderly default …

… call up the IMF … ask for a big loan … refuse their austerity measures …

Short of calling the recommended 6am meeting with the IMF team to announce the default … and making a 3-day bank holiday … Greece has done everything in a very orderly fashion so far …

And, whatever we might think of the sticking plasters that the ECB have been fixing up the euro crisis with – these plasters have done a good deal to insert some order into the process and, most importantly, to delay a default until economies are in a better position to deal with it.

Or, at least, we thought that European economies were back on track, until this week.

The markets have taken a pounding over the past seven days.

The bull run that’s been dominating the equities markets so far this year, appears to have fizzled out, and then promptly turned, running for the hills with its tail between its legs.

Equities are looking very vulnerable.

Gold is proving to be precarious.

What does this mean for us traders?

It means that we’ve got some of the most exciting trading ahead of us in the coming months, and that now is not a time to sit back and be complacent.

We need to be proactive, because those profits aren’t going to fall in your lap if you’re just sitting on long-term buy-and-hold positions.

Which is why I want to show you my trading technique, that will take advantage of short-term moves, and won’t keep your money tied up in vulnerable markets.

Remember to keep an eye out for more details next week. Plus, if you haven’t yet got your name on the priority list – there’s still time.

CLICK HERE to get your name down.