Weiss: Prepare for the Worst

04/16/2004 12:00 am EST

Focus:

Martin Weiss

Chairman, Weiss Research, Inc.

"My advice is to pray for the best, but prepare for the worst," says Martin Weiss. "Get your money to safety." Here, he highlights specific stock, bond, and currency positions, which will benefit from rising interest rates, falling stocks, and a falling US dollar.

"Despite powerful forces normally associated with higher interest rates-war financing, the bulging federal deficit, and surging commodity prices- the US Federal Reserve continues to hold down the lid on its official rates. But they're a pressure cooker, ready to explode. US bond rates continued to march higher, and it's becoming increasingly unlikely the Fed will be able to hold out much longer. An official rate hike could come a lot sooner than most people now expect.  In light of this, we continue to recommend Rydex Juno (RYJUX), which rises in value along with rising interest rates. After falling as low as 4.6% in March, the yield on the 30-year Treasury bond has been steadily marching back toward the 5% range. Because this fund's shares are designed to go up as Treasury bond yields rise, the recovery in yields has helped produce a similar recovery in the fund. We are convinced this trend will continue. If you don't own yet, buy.

"In addition, the stock market rally cannot be sustained. The Dow may try to make new highs for the year and may even succeed by a modest margin. But a sustained rise in the stock market, in the face of sharply rising interest rates, is highly unlikely. For anyone holding blue chips or techs, I see it as your final warning to get out. And for those seeking to profit from the decline, we continue to recommend the Rydex Arktos (RYAIX), which moves inversely to the NASDAQ 100 index. The higher the market goes in the next few weeks, the better the selling opportunity. If you have not yet bought this fund, the latest mini-rally in the market is giving you the chance to jump on board.

"We also note that while the dollar may rally temporarily, the fundamental pressures on the dollar, including the worst trade deficits in history, are not going away. Until recently, the euro has led the march against the falling dollar. Now, however, it may take back stage as other foreign currencies jump ahead. I recommend you switch a good portion of your dollar hedges to the Australian dollar for a better yield and for better prospects for appreciation. As such, in our conservative portfolio, we are recommending 3-month Australian dollar CDs. The Australian dollar is now benefiting from three factors: the continuing weakness of the US dollar, the worldwide boom in natural resources, and higher yields. Right now, for example, the Australian dollar CDs, available through Everbank (which offers US investors easy access to currency-denominated CDs), provide an annual compound yield of 4.45%, or 3.5 times more than the yield on euro CDs and 4.7 times more than 3-month T-bills.

"We also remain bullish on gold and believe that an y setback in gold will be temporary. The near-term strength we're seeing in the economy can only further fan the flames of inflation and inflationary fears. Don't expect rising interest rates to douse the boom in gold and other natural resources, especially while the Fed is still resisting the rise. It's only much later, after the Fed has pro-actively pushed rates much higher, that it will be time to take your profits in gold-related investments. Among our gold holdings we continue to recommend Goldcorp (GG NYSE), Cambior (CBJ NYSE), and Newmont Mining (NEM NYSE)). If you don't own these yet, buy now."

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