Why the EU Debt Crisis Matters to Us

European bond traders are going for the jugular

     

Like citizens around the world, traders are tired of being lied to by politicians who lie to each other. And, most of all, they’re tired of not being able to adequately assess risk to the point where they can do their jobs.

So they’re taking matters into their own hands.

This is what I mentioned was Wall Street’s worst nightmare a while back — that traders finally get fed up enough that they overwhelm central bankers and force interest rates higher, much in the way the so-called bond vigilantes did in the early 1990s.

By hook or by crook, it doesn’t matter why. That they have now centered their attention on core European countries does.

So now what?

I believe that the world’s governments and central bankers think they’re smarter than the rest of us and that they can manage the world’s economy better through central planning than capitalism can through private enterprise.

I also believe they’re dead wrong. They’ve been wrong since this crisis began and they’re still wrong.

Here’s how investors need to respond:

  • Hold hard assets as a means of hedging the value of your investments and protecting your purchasing power.
  • Include energy in your portfolio because it’s driven by demand, compared to debt, which is driven by clueless politicians throwing good money after bad.
  • Bet on growth in the form of “glocal” stocks — global companies with a big presence in developing markets.
  • Protect yourself with inverse funds that appreciate when the broader markets head south.
  • Understand that it’s not “buy and hold” that matters any longer. Instead, it’s more like “buy and hold your nose.”

Yes, the risks are great, but the risks of getting left behind are greater — even if the payoffs are not immediate.

This article originally appeared on Money Morning.

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Article printed from InvestorPlace Media, http://investorplace.com/investorpolitics/euro-zone-debt-crisis-bond-traders/.

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