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www .A f t e r s h o c k I n v e s t o r R e p o r t . c om

Aftershock Awakening

Phase Iby Robert Wiedemer

A Newsmax Media Publication

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By Robert Wiedemer and the Aershock Investment Team

You may have heard this saying, considered by

some to be a curse: May you live in interestingtimes.

The years since the credit crisis have certainlybeen interesting. Not many people saw thehousing bubble getting set to pop. In act, plentyo people at the very top o our economic house ocards atly denied the possibility.

Denial didnt really work out or them, didit? (Oh, theyre still in charge, but with greatlydiminished moral authority). Once the housingcrash was under way, the credit crisis came hard onits heels.

Then we saw things I truly never, everthought could happen in our supposedly reeU.S. economy. Taxpayer bailouts o global banks,even o oreign rms. Government ownership oenormous, agship manuacturers. Gilded nameso Wall Street belly up and sinking ast.

Even sae money wasnt sae. Fearing or theirwealth, investors around the world sold everythingin a blink and hid their cash in U.S. bonds and, to

a lesser extent, oreign currencies and other hardassets. Like a slow-motion tsunami, its still going on.

It all seems completely unbelievable now,doesnt it? Like a bad dream you shake o andorget.The problem is, were still dreaming. Yes, thestock market recovered, in the sense that the Dowdidnt stay below hal o its all-time high. Threeyears on, investors who didnt panic at the bottomhave been made nearly whole, or the moment.

But thats not because the economy has

recovered or done anything even close. Stocks

are up, at least temporarily, because our FederalReserve went ull-time into the business o makingbond income all to zero.

The publicly stated goal, which Fed Chie BenBernanke has made clear in numerous speechesand publicly available papers, is to trick you intothinking things are better. Its a simple con, andlike all great rauds it works because you want tobelieve. The game works like this: The Fed tells theTreasury it should issue new debt. The Fed thenprints mountains o new dollars to buy the debt.Like magic, interest rates stay extraordinarily low.

But thats only hal o the picture. Low ratesmean U.S. debt pays nearly nothing in terms oincome, less than ination in the case o longbonds. Yet most people especially individualinvestor retirees but also big pension unds andretirement plans need income to survive. Theyhave to eat, right?

Squeezed out o their bond income, savers putmoney at risk. They bought stocks.Boom! Theres

your recovery, cooked up to order. Its a cravenstrategy, akin to something out o Dickens.O course, the economy hasnt changed one

whit. Employment isnt any better. Construction isstuck in low gear. Manuacturing is weak. Nobodyborrows, nobody spends. But stocks are up, so thingsmust be better, right?

And we go on dreaming. The same FederalReserve that denied the possibility o a crash todaycontinues to deny reality at every turn.

Aershock Awakening Roadmap Phase 1 Special Report:

18 Smart Investments to Survive andThrive in the Aershock

The Aftershock

INVESTOR REPORT

Bob Wiedemer, Editor Phase 1 Special Report

A Publication of Newsmax & Moneynews

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2 TheAershockInvestorReport.com Phase1SpecialRepor

ZombieEconomyBy printing up all o this new money, the

government hasnt solved any o our realproblems. They simply transerred the bubble romside o the balance sheet to the other.

I suppose, in the darkest hours o the credit

crisis, the leadership in Washington elt compelledto save jobs and salvage what they could.

But the net eect has been to zombiy the

economy: dead banks, stumbling construction,weak retail, millions out o work. There is noexit, except or a real recovery. But there is no realrecovery hovering just beneath our ake one. Itsake all the way down.

Meanwhile, new bubbles grow a massivebubble in U.S. government debt and another hugeone in the U.S. dollar.

Once again, the con works because we want tobelieve. Thats how bubbles start and grow, bit by

bit. Were only human. We want good news andgood times, not sacrice and suering.

So we all participate in this mass delusion,up to and including those at the very top o ourgovernment and economic power structure, theolks who supposedly know better.

Theres an endgame coming. The truly smartmoney knows that it is not a matter o what willhappen, but when.

Being prepared is the key. Much o what I have

to tell you in the ollowing pages is not abouttaking action today or tomorrow. It is about beingready to act and knowing what to do when thebubbles are revealed to the deluded masses oordinary investors.

It will happen. Yes, denial will continue untilthe last possible moment. Then, likethe housing crash and the bankingcrisis, the truth will become painullyevident to all. Panic will set in, andinvestors will quickly act on the newreality as the biggest bubbles o allresoundingly pop.

Being prepared starts withkeeping things simple. When thegovernment debt and U.S. dollarbubbles burst well again see volatile

nancial markets and an unstableeconomy. On top o that will comeaggressive ination, such as wehavent seen in decades.

IgnoringFactsThere is no precedent in living

memory or this type o Americancatastrophe. Most o Wall Street is unprepared orit. Washington didnt see the last crisis coming, andthey ignored obvious acts until well aer it was

too late to change course.For the individual investor, however, there is an

exit: Your personal path to saety revolves aroundve specic types o investments that have shownan ability to grow in times o crisis, and grow inlarge part because of crisis.

At some point, ination and interest rates willrise, investor condence will wane, and the dollarwill all ar enough that buying U.S. debt becomesunattractive. Our Treasury auctions will ail or lack

o buyers, an event that will orce a new, even morespectacularly massive Fed intervention to purchaseour bonds. The money supply, in trader lingo, willgo parabolic it will zoom straight upward.

Relatively quickly, such massive purchasesbecome uneasible. Our government wont be ableto borrow any more. We will hit the scal creditlimit and the massive public debt bubble will pop

How much can the ederal government borrowbeore this happens? In a presentation we made

$11,000

$10,000

$9,000

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$3,000

$2,000

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MoneySupplyHeadedUp,Up,Up

SOURCE: Board of Governors of the Federal Reserve System

The supply of dollars, thanks to massive Federal Reserve prinng, has been relentless.

Fed Chief Ben Bernanke claims that lack of inaon means lile demand for all this new

cash. Nevertheless, they are out there, fuel for an eventual inaon wildre.

BillionsofUSD

1980 1985 1990 1995 2000 2005 2010 2015

Shaded areas indicate US recessions

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Phase 1 Special Report Moneynews.com 3

to the World Bank, we asked the audience whatthey thought the governments credit limit mightbe: $10 trillion to $15 trillion, $15 trillion to $20trillion, or $20 trillion to $25 trillion.

Almost hal o the respondents said $15 trillionto $20 trillion, and a third voted or $20 trillion to$25 trillion. Were already in that neighborhood, at

$16 trillion and counting.No one can predict a number with any

precision because the governments actual creditlimit will depend on uture investor psychology.However, we agree with our World Bank audiencethat our credit limit will be in the $15 trillion to$25 trillion range, most likely closer to $25 trillion.

I interest rates dont rise too much, thenwe wont hit our credit limit or some years.The laughably unlikely alternative is explosive

economic growth at home, such that $16 trillionas a percentage o our GDP actually shrinks.Thats not going to happen in a very large, matureeconomy with an aging population.

I our analysis is right and interest rates doincrease signicantly, we will move slowly towardour credit limit over the next two to three yearsthen rapidly approach our credit limit within threeto ve years.

RushtoSafety

At that point, the dollar and the governmentdebt bubbles will, nally, burst. Everything, andI do mean everything, will be in play. You will bewell served at that time to have made the rightmoves early enough to protect what you have and,i you move in a timely manner, even to gain onthe huge rush to saety that will ollow. That meansdoing several key things at the right time:Exit all adjustable-rate mortgages. Either

convert them to xed loans or pay them o.

Avoid long bonds. When rates spike, theseimmediately lose value.Buy gold. There is still much more growth

ahead or hard assets, especially gold.Limit your exposure to equities. This will be

hard to do or most people, but most commonstocks will be high risk in short order.

Stay away rom real estate other than yourprimary residence with a xed-rate loan.

Be ready to deploy cash selectively into

exchange-traded unds (ETFs) that takeadvantage o the quick moves in the marketahead.

The balance o this report is about exactly howyou should be investing during the years ahead.I will be explaining several dierent asset classesand approaches to the market. The order is notimportant. What matters is getting your own headclear as to why you would buy them and underwhat circumstances you would later sell.

For most investors, that takes work. The buyand hold cult o equities is a strong one witha long history. The notion that bonds are saewithout exception also will be hard to break. (Iexplain bond risk in detail later in this report.)

Most investors trust this two-step approachimplicitly. A big part o the work ahead will be to

disabuse you o the mistaken view that owningsecurities is the same as being secure.

Nothing could be urther rom the truth, aswell all soon learn. Huge numbers o peoplecouldnt believe their homes might lose value tothe point o being worth less than their mortgagebalance. Yet here we are, with millions o homesunderwater, never to break even in our lietimes.

That should give you a clear idea o what couldhappen to your retirement once the Aershock

hits. You will own the same stocks and bonds, yes,

About Bob WiedemerRobert Wiedemer is a managing director

of Absolute Investment Management,

an investment advisory rm. He is the

author of the New York Times and Wall

Street Journalbest-sellerAfershock, with

more than 700,000 copies sold, and the

Wall Street Journalfollow-up best-seller, The Afershock

Investor.

Wiedemer predicted the latest downturn in theeconomy in his landmark 2006 book,Americas Bubble

Economy, which Kiplingers chose as one of the best

business books of that year. A regular speaker to hedge

fund captains and elite internaonal investors, Wiedemer

is oen quoted in the nancial press, including in

The Wall Street Journal, Financial Times, Dow Jones

Newswires, Barrons, Reuters, The Associated Press and

others. He is a frequent commentator on CNBC and Fox

Business Network. Wiedemer holds an MBA from the

University of Wisconsin in Madison.

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but like all those underwater homes, your lielonginvestments literally will be worth less than youpaid or them and remain so or the rest o yournatural lie. No recovery, no do over, no bailout.

TheAershockInvestmentPorolio20% Gold and Precious Metal-Related

Investments20% Commodities (Food, Energy)20% Short-Term Bond Funds20% Dividend Stocks10% Foreign Currencies10% Options (as explained in Aershock

Awakening, Phase Two)

Gold:ABedrockAssetThe rst asset class I want to discuss is gold,

both the metal and gold mining companies. In

both cases, I would advise you to buy them usingETFs. In addition, you can buy individual goldmining stocks rom time to time i so moved.

I like owning miners through ETFs becauseo the low ees and ease o buying. OwningETFs gives you instant diversication, since youare buying not one or two but dozens o greatcompanies. Yet there are some good individualminers to consider, at the right price point.

Golds critics like to talk about its unreliableperormance. But they tend to cherry-pick short-term periods to make their case. I you look outover a given year, gold hasnt necessarily done thatwell compared to, say, stocks. Not horribly, just notbetter. But widen the scope to ve years and goldblows stocks away.

An ETF I like a lot, the SPDR Gold Trust(GLD), returned 94 percent rom 2008 to 2012.The Dow Jones Industrial Average is slightlynegative over the period. Take it out 10 years andthe comparison gets silly, with gold up 259 percentagainst just 56 percent or the Dow.

The reason why is the U.S. dollar. In terms othe Consumer Price Index (CPI), the buck is down22 percent rom a decade ago. Simply put, $1 in2002 is worth 78 cents today. In ination-adjusted

terms, your gain rom the Dow stocks wouldcompensate you pretty well or that decline inpurchasing power. Aer all, its up by 56 percentcompared to your 22 percent loss in dollar-denominated purchasing power.

Nevertheless, gold creamed the Dow. Byholding gold, you would have gotten theprotection o a 259 percent gain compared to a22 percent drop in the dollar, a huge bump up interms o real wealth.

When the Aershock comes, stocks willcrumble along with the greenback. Gold will beone o the assets people turn to as a haven. Yes, theU.S. dollar has ruled the monetary world since theend o World War II. Once that ends, however, thecollapse will make certain oreign currencies and,by extension, key precious metals suddenly morevaluable to own i you buy them in time.

PhysicalGoldWorld governments are preparing or this

inevitable outcome. Most o golds supposed bullrun over the past ew years has been on buyingrom the worlds various central banks. The bankshad been net sellers o gold or years. That trendnow has reversed in a permanent way.

Do you think China will be interested in ourdebt once the bubble pops? Or in the dollar? JapanBoth o these countries are already drowning ingreenbacks they dont want.

Even without their help, the price o gold has

TheAershockInvestmentPorolio

SOURCE: The Aershock Investor Report

Most nancial advisors tell you to sck to mostly stocks and some

bonds and thats it. The coming investment reality will demand a far

dierent approach, including hard assets, currencies, specic bondposions and safe income stocks.

10%Foreign

Currencies

20%Goldand

PreciousMetal-Related

Investments

20%Commodies20%

DividendStocks

20%Short-TermBondFunds

10% Opons(as explained inAershock Awakening, Phase Two)

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been soaring. I you recall, it was selling at $36 an

ounce in 1970. Even as late as 2001 you could buyit at $271. Soon aer, a steady climb began to theprice levels you see today.

I you want to own gold coins, I see no reasonwhy not. Building a base position in the orm ophysical gold can be very reassuring, somethingyou can do on dips over a period o months.Decide rst how much physical gold you want tocontrol, perhaps as a small slice o your 20 percenttotal gold holdings, and stick to it.

Have a sae place to store your gold, such

as a bank saety deposit box. Unless you own acommercial-grade sae, its best not to keep goldat home. Make sure that someone else you trustknows how to get into the sae or can access yourbank deposit box in the event oyour death. Gold coins you planto never sell can be a great way toleave behind wealth to your heirs,or instance.

Be sure to buy easily traded,

widely accepted coins, such asAmerican Eagles, Canadian MapleLeas or South AricansKrugerrands.(The premiums or each can vary.Do your homework and buy roma reputable dealer you meet withace to ace.) Remember, you areprimarily interested in utureconvertibility. Coin collecting is agreat hobby, but dont conuse it

with gold investing.Beyond that base position,

you can extend your physicalholdings with ETFs. I mentionedearlier an ETF I like that tracksthe price o gold metal, the SPDRGold Trust (GLD). Another good

one is iShares Gold Trust (IAU).Both o these unds work thesame way. They buy physical goldand store it, then issue certicateswhich are claims on the actualgold.

Billionaire hedge undmasters such as George Soros andJohn Paulson both heavily use

exactly these ETFs or their gold positions. These

unds are liquid, cheap to own and trade, andprovide what you want: exposure to gold metal.

GoldsHiddenWeaponFinally, consider topping o your gold position

with gold mining stocks. You can own a broadselection o large-cap miners through MarketVectors Gold Miners ETF (GDX). These willbe the biggest, most widely held gold miningcompanies, rms that work in multiple countriesand in multiple currencies.

Thats the hidden weapon in owning goldmining and resource stocks. Most gold minersare not located in the United States but in oreigncountries whose currencies are viewed as anti-

SPDRGoldTrustETF(GLD)

SOURCE: Yahoo! Inc.

The SPDR Gold Trust ETF, which trades under the cker symbol GLD, has been an inverted

mirror of the economy at large. As a holder of physical gold, its performance reects investor

distrust of tradional stocks and bonds.

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MarketVectorsGoldMinersETF(GDX)

SOURCE: Yahoo! Inc.

One way to play gold in the Aershock is via gold mining companies, the largest of which

are captured by the Market Vectors Gold Miners ETF, under the cker symbol GDX. While

not a direct proxy for gold metal, the companies held by GDX are good barometers of gold

investor interest.

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dollar investments, largely because o theirdomestic mining sector.

Australia and Canada, or instance, issue theirown dollars, so earnings rom mining in thosecountries come back to you aer being convertedinto U.S. dollars. You get the bump up rom theavorable currency exchange, rom a rising stock

price on the mine itsel, and rom appreciation inthe underlying metal an investing triecta!

Another good candidate is Market VectorsJunior Gold Miners ETF (GDXJ), the small-capversion o the same und. It holds a broad varietyo the more aggressive junior mines. Its a morevolatile und, but like small cap stocks thesesmaller miners sometimes do much better than thebigger, slower-moving global mining outts.

As or individual mining stocks, one I

particularly like is Agnico-Eagle Mines (AEM).This is a Canadian company, one o the industryheavyweights. It has operations in Canada, Mexicoand Finland, and explores at home in Canada,in Europe, across Latin America, and also in theUnited States. It has ve mines and owns 10%percent interests in them, meaning they dont sharethe output with co-investors, a common practicewith smaller, less-capitalized operations.

Agnico is big. It has a market cap o $8.7 billionand no problem getting nancing to expand when

it nds new resources. It also isnt shy about exingits muscles and buying up smaller producers withpromising properties.

Another, similar investment is EldoradoGold (EGO). It has a similar market cap and runsmines in Turkey, China, Greece, and Brazil. Itsdevelopment arm includes mines and explorationtaking place in China, Turkey, Brazil, and in theU.S. state o Nevada. It prides itsel on being alow-cost producer, a good strategy when gold

was selling below $300, or sure. But low cost alsomeans the upside on rising gold is that muchbetter when the metals price takes o.

Finally, Im a fan ofNewmont Mining (NEM),

a U.S. miner that is diversiied all over the globe. It

has operating segments on every major continent

and nearly 99 million ounces of probable gold

reserves. Like other large caps, it doesnt hesitate

to buy up junior miners for their potential, as

Newmont did in buying Fronteer Gold in 2011.

Newmont also mines copper, an industrial

metal that has been on a trajectory similar to

gold in the past few years. When the Aftershock

hits, you are likely to see demand for industrial

metals decline, but dont expect that to last. China

and India will quickly return to growth, giving us

both the upside from copper growth demand and

protection from a declining dollar in gold.

HistoryLessonsbythePoundIn the gold section above, I spoke a bit about

the concept of the anti-dollar investment

strategy. Youll ind that logic repeating

throughout my communications to you, and for a

simple reason: The U.S. dollar is a bubble.

Once that bubble pops, lots of things will

start to happen quickly. One effect, naturally, will

be a light from the dollar into other currencies.

Defenders of the status quo like to talk about how

unlikely it is that people will sell their dollars, as if

there werent enough places to put their wealth.

Im sure the holders of the British pound felt

the same way. The pound sterling was, for many

years, the worlds major reserve currency. Given

the extent of the British Empire and its fearsome

naval power, trading in the pound made a lot

of sense. The United Kingdom built itself into a

global power during the 18th and 19th centuries

largely by conquering far-lung foreign lands andcontrolling their exports.

Much of the resulting wealth ended up in

the vaults of the monarchy, providing the U.K.

with world-beating reserves. That helped shore

up the pound as the hard currency of choice for

international trade, a regime that seemed it would

last millennia.

What changed? First, the United States created

its own central bank, the U.S. Federal Reserve, in

1913. Two World Wars intervened, destroyingmuch of the industrial capacity of Europe in the

process. From the rubble, America emerged as

the sole global economy wealthy enough and

organized enough to pick up the pieces. For

instance, we inanced the Marshall Plan to rebuild

Europe after World War II.

Still, at the end of the Second World War the

pound sterling remained central to trade. Thirty-

ive countries or colonies were pegged to the

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pound and held sterling reserves.

Roughly 87 percent of global foreign

exchange reserves were in sterling.

Ten years after the war, however,

the pound had dropped in value by

30 percent, a shocking change. The

major economic powers agreed at the

end of the war to establish a globalforeign exchange system that hinged

more heavily on the dollar. The pound

sterlings role in foreign currency

reserves went on a steady decline,

from well above 50 percent in 1950 to

single digits by 1982.

Could that happen to the U.S.

dollar? Absolutely. It might not

happen tomorrow or next year, but

it could happen easily and quite quickly. Onceforeign holders of dollars get spooked about

inlation, they will move to protect their remaining

wealth. The U.S. dollar is likely to remain a reserve

currency, it just wont have the stature that it

enjoys today.

APerfectHedgeHeres the thing about being the worlds

reserve currency: People use it as tool to buy and

sell real assets, such as food and energy. Evey

wonder why the rest of the world puts up withpricing oil and food in U.S. dollars? Because they

believe it is stable, irst of all. And because the

daily trading price of any commodity is slippery

enough without having to calculate it in several

currencies at the same time.

For instance, if Brazil wants to sell oil (or

soybeans or sugar) to India, how does it go about

doing that? By iguring out the value of its own

currency, the real, against the rupee, then working

on the commodity bids? Of course not. Bothcountries agree to use the U.S. dollar and then

work solely on setting the price of the commodity

in question. When the dollar begins its permanent

slide, stability is gone. Trade has to continue, so

countries will quickly move to a stable alternative.

A strong secondary effect of the dollars

sudden slip will be increased buying of hard

assets. People do not need dollars (or euros, or

yuan) to survive. They do need food and energy.

As currencies become unstable, the tendency is

for major investors to push capital into exactlythese commodities to hide out until markets

right themselves.

BuildingYourArsenalUsually, its the dollar that traders worry

about most. If the dollars decline seems to be

accelerating, traders will move cash hard and fast

into food and energy. They will shoot irst and ask

questions later.

Thats why its vital to understand how to buy

and own agriculture and energy investments ina cost-eficient manner. As part of your arsenal

against a declining greenback, they are hard to

beat, largely because of the relex among traders

to buy these hard assets when the dollar falls.

One way to own that kind of protection is to

buy a broadly diversiied agriculture ETF. One

that I have used for years is PowerShares DB

Agriculture Fund (DBA). This ETF is designed

to track the benchmark DJ-UBS Agriculture Index.

It buys commodities such as cattle, cocoa, coffee,corn, cotton, hogs, soybeans, sugar, and wheat.

Over the past few years, youll ind that the

DBA fund has lost ground against stocks. But

thats really not the comparison to make. Its more

revealing to look at how it did during the 2008

credit crisis. In October 2007, as the panic set in,

the DBA fund went parabolic nearly straight up

as the big investment banks began to collapse.

This move was not in reaction to stocks

PowerSharesDBAgricultureFund(DBA)

SOURCE: Yahoo! Inc.

As a counterweight to ordinary investments, there are few assets comparable to food.

People can live without many discreonary purchases, but they must eat. You can see

the 2008 panic out of stocks in the spike in this chart of PowerShares DB Agriculture

Fund ETF (DBA).

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or even to the economy. After all, a declining

economy generally means less consumption,

not more. Rather, the move to agriculture was in

reaction to fear for the dollar itself.

It was about this time that the major bank

bailouts began and the Fed irst acted to prime the

pump, so to speak, by guaranteeing bank deposits

and working with global central banks to halt thepanic. The dollars lowed freely from government,

so traders ran into commodities to hide.

DBA stayed aloft for nearly a year, then inally

came back to a normal trading range by October

2009. It began another interesting move upward

in the middle of 2010, as the Fed began its

quantitative easing programs that is, more

money printing in earnest.The lesson here is pretty simple: More dollars

into the system means a declining value for thegreenback. One way to protect that value is to buy

a hard asset of indisputable worth. Since pretty

much everyone eats food, thats where the wealth

runs to hide when the dollar is threatened by the

powers that be.

PowerPlaysAnother niy hiding place or global wealth is

energy. It only makes sense, o course. Oil is tradednearly universally in dollars. I the dollar loses

value, the worlds oil producers begin to demandhigher per-barrel prices to compensate. Beingmostly in a cartel (the OPEC countries), they cando that by decreasing supply at the right moment,

orcing oil higher.Its a pain the neck, or sure. But you dont have

to be a victim. I advise owning a position in thePowerShares DB Energy Fund (DBE) ETF.

This und tracks an index o utures in oil,gasoline, and natural gas in an eort to capturesome o the upside in the entire energy sector. As

an ETF, it gives us instant diversication into acomplex and hard-to-trade market and at a verylow price. I you look back at its perormancecompared to the DBA agriculture und, you see asimilar spike in late 2007 and on into 2008.

Did the world suddenly need more gasolineand heating oil? Nope, what you see there isentirely panic-driven trades as the worlds wealthylooked or ways to get away rom the dollar. Thatswhy people oen reer to commodities as hedge

investments. They tend to do well when traditionalassets are on the ropes. Thats why we need tounderstand them and be ready to own them whenthe Aershock comes.

DevaluedPaperThe third part o our ve-point portolio is

oreign currencies. I realize that many o youwill be a bit hesitant to consider this avenue oinvesting, but used judiciously, it will protect yourom exactly the kind o impossible decline that

is likely to occur in the Aershock.How impossible? Well, consider that most

investors today still believe wholeheartedly in asimplistic mix o stocks and bonds. It has been

baseline nance thinking or decades:You own stocks or appreciation andbonds or protection. Many adviserssuggest an age-based calculation, suchas subtracting your age rom 100, theninvesting the dierence in stocks and the

rest in bonds.For a 60-year-old, that would meanowning 40 percent stocks and the rest inbonds. Easy, right? As you will learn soonenough, its exactly this kind o cookie-cutter approach that will get most peopleinto deep, deep trouble down the road.

Problem is, both bonds and stocks areset to do the unthinkable decline inunison. As the Aershock hits, stocks will

PowerSharesDBEnergyFund(DBE)ETF

SOURCE: Yahoo! Inc.

Oil and energy are great places to hide when tradional investment go sour, as we

clearly see here with the PowerShares DB Energy Fund (DBE) ETF. Since oil and other

energy assets are traded globally in dollars, any assault on the greenbacks value

results in higher prices for fossil fuels.

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all dramatically, much like they did during thecredit crisis a ew years back. As ination ramps up,though, bonds too will drop in price.

Once bond prices slip, there simply will be nobuyers out there or the trillions in devalued paperinvestors own today. You might say, well, I canjust hold it to maturity and get my money back.

Except that ination will speed up, too. The dismalreturn you see today on 30-year Treasurys will beoverwhelmed by the loss o purchasing power. Youwill get your dollars back, but greatly devalued byrunaway ination.

Some o the pressure on xed income mightpush olks into stocks. But the Aershock also willcreate a recessionary wave that will hit all o themajor economies more or less at once. There willbe no hiding place, least o all in cash.

Thats the undamental problem. Evencontrarian traders who might be comortablegoing to cash in a panic will nd that ination iseating their cash position alive. They, too, will loseground.

The ight rom the dollar will result in anovernight spike or alternatives gold, as I discussabove, as well as commodities such as agricultureand energy. But it will also spark renewed interestin the currencies o nations in ar less dire straits.

LookingAbroadMany o these countries enjoy hard currencies

as a result o sheer reputation: Switzerland, orinstance, with its rock-ribbed, conservative bankingculture. But others benet rom being exporters oin-demand commodities, such as metals, energy,agricultural goods, and orestry products.

Thats why you see so much interest in theAustralian dollar (all that mining) and in theCanadian dollar, or loonie.

Canada is an interesting case. These days it isenjoying near parity with the U.S. dollar. Thatwasnt always the case. In act, go back 10 yearsand youll nd the Canadian buck was worthabout 60 cents to the dollar. Simply put, i youowned loonies then and just held them, you got a40 percent return over the decade. Not a startlinginvestment, but indicative o a trend.

That trend is important to us because it reectsthe general approval o the world marketplace o

how the Canadians have managed their economyover the last 10 years, and its broad disapproval othe United States in comparison.

Now, a stronger loonie creates problems orCanada, making it harder or exporters who wantto sell into the huge U.S. market things like logsminerals, and ood products. By the same token, a

stronger loonie makes U.S. ood and manuacturedimports cheaper or Canadians, which helpsincrease their standard o living.

The reason to be worried now is our Fedscommitment to virtually endless dollar printing.As long as the Federal Reserve continues to ease,the loonie comes o looking like a sae haven incomparison.

When the Aershock arrives, you canexpect a very strong, very sustained move into

the Canadian dollar to result. One way to ownexposure to the loonie at a minimal cost is throughCurrencyShares Canadian Dollar Trust (FXC), asimple ETF that owns Canadian dollars, much likeour gold ETFs physically own gold.

Now, i you live near Canada you could just assimply exchange dollars or loonies and keep themin a saety deposit box. But you would pay somesti conversion ees and pay again when you needU.S. dollars to spend. So an ETF is a simpler, moreliquid way to buy protection.

Owning a single countrys currency, howeverclose and amiliar, might eel to you like a risk. Ilike the loonie, but I understand the concern. So analternative is to buy an ETF that invests in severalhard currencies at once, such as the PowersharesDB G10 Currency Harvest Fund (DBV).

This und does something a bit trickier thanmost. It exploits what is known as the carry trade.In simple terms, it attempts to prot when oreignexchange investors move money rom countries

with low interest rates toward countries with highinterest rates. The und tracks an index that isbuilt rom at least six o the 10 ollowing places:the United States, the European Union (euro),Japan, Canada, Switzerland, Britain, Australia, NewZealand, Norway, and Sweden.

The way this works or us is that the undsmanagers will exploit the very high degree o ratedivergence that will happen once the U.S. interestrate begins its climb. It does so in the massive,

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highly liquid environment o the global currencytrade. As investors, we need not worry aboutexactly how to perorm such a complex trade. Weneed only be ready to buy this und beore U.S.rates head permanently upward.

Remember, the point here is not to make akilling overnight but to outperorm ination, thus

protecting our wealth. Its keeping our powder dryto ght another day.

UnderstandingBondRiskNow, Ive spent a air amount o time talking

about the dangers o bonds. But let me be clear:The problem is long bonds, not short-term debt.Any ederally issued debt you hold now maturingin 10 years or longer is going to deliver a nastyblow once the Aershock sets in.

The problem is not getting your money back,its ination. It works like this: I you own a bond,the price o the bond is a mirror-image reectiono the yield. A high-yielding bond has a low priceand a low-yielding one has a high price.

Its counterintuitive, but the reason is risk. Acountry that must borrow does so by oering upits good name. I investors trust it, there will be aline o olks trying to lend money. The borrowercan pretty much dictate how much it will pay (lowyield) and competition to place the debt drives up

the bonds value (high price).On the contrary, a borrower with a bad

reputation will nd ew takers. It will have to paymore in yield or the same line o credit and havea harder time placing the debt. Its bond thus willcost the lender less to buy (low price)and pay a higher income stream (highyield) to compensate or the risk o notbeing paid back.

Right now, U.S. long debt is quite

expensive. Thats because o the Fed,which is buying most o the new debtbeing issued. It is cheating by crowdingout other buyers in order to drivedown yield. At some point, though, ourTreasury will nd no buyers at all. TheFed will swoop in to buy everything itcan and then the jig is up. They wontbe able to print enough to buy all thebonds we will be orced to issue to pay

the interest we owe, never mind the principal.Rates will skyrocket.

Conversely, bond prices on long-dated debt willall. I you own long bonds, ination alone will eatup any possible gain rom its tiny xed yield, andyou will nd absolutely no buyers or your old,low-yielding U.S. debt. Like an underwater home,

it will be undamentally worthless.However, there are bonds worth buying. Short

U.S. debt will be sae, in comparison. It wont yieldmuch but the demand or sae havens will mean arush into the short end o the market. You couldalso buy and hold Treasury Infation ProtectedSecurities (TIPS), which are designed to keep pacewith ination. But buy them early, since demandcan and will push the price negative.

OwnCashFlowsFinally, I know I have discussed the risk o

owning stocks in the Aershock, but there is oneclass o stock that you should consider or part oyour trading portolio going orward: blue-chipdividend stocks.

The moment to buy these is once the stockcrunch is under way. The reason why is becausestrong, long-term dividend payers have a trackrecord o generating income in nearly all markets,even catastrophic collapses. They generate cash

ows we will want to own at the right price.You might have noticed that, despite the

recession, corporate America is doing just ne.Earnings or many are strong and companies siton literally trillions o dollars in cash. That is in

Wal-MartStores,Inc.(WMT)

SOURCE: Yahoo! Inc.

The weakened global economy held down demand for shares of global retailer

Wal-Mart. While the economy is no beer (and could easily turn worse from here),

demand for safe income has pushed up shares of the dividend-paying giant.

2008 2009 2010 2011 2012 2013

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large part because Americas companies are armore global than in the past. They make moneyeverywhere, not just at home.

In previous times they would be busydeploying that cash into new investmentopportunities. But the recovery has beenextraordinarily weak, so this time they are giving

money back to shareholders hand over st, eitherthrough dividend increases and special dividendsor share buybacks, which have the eect osupporting a strong dividend.

The kinds o companies you should seek out,then, are dividend payers with long track recordso maintaining and raising dividends. These arecompanies that are likely to survive even a seriouseconomic decline at home either because they sella product that is recession-proo, or because they

have oreign income, or both.

DividendStrengthOne such company is Wal-Mart Stores (WMT).

I dont think I need to explain their business modelto you, but you should know what ew realize aboutthe company: Its a world-beater. It operates in 26countries now and seems to notch a new oreignacquisition every ew months or so. The dividendon Wal-Mart is solid, i unspectacular. Nevertheless,purchased at a prudent price point, it oers several

layers o protection rom the Aershock.Stock prices in general are likely to drop as

the bloom comes o the rose. This is a good timeto pounce on dividend-paying stocks, since theirrespective yields will skyrocket in comparison toprices. Soon aer, bond investors will pour intodividend stocks or the income replacement, pushingdividend stock prices back up. You win two ways,having captured the lower price level (buying incomecheaply) and then appreciation on the rebound.

Sound interesting yet? Another great play alongthese lines is McDonalds (MCD). Talk about aglobal company. These are the olks who essentiallyturned ranchising into a science. McDonaldsmanagement will not rest until there are goldenarches on every street corner in the world.

There are other companies worth a close look.Not too many years ago, most stock buyers wouldhave shied away rom AT&T (T), considering it toobig, too clumsy, too retro a stock to take seriously.

I completely disagree.The 1996 deregulation o the telecom industry

might have been the end o the old Ma Bell, butit certainly wasnt the end o AT&T. It managed toreormulate as a cutting-edge wireless and pay TVprovider, all the while shedding the more heavilyregulated portions o its legacy businesses.

Theres not a lot o room at the top o thetelecom heap. New technologies and creativedestruction run rampant. Yet AT&T has managedto turn turmoil into opportunity, again andagain. A better than 5 percent yield isnt hurtingbusiness, and I expect the company to staystrong on dividends into the uture as well asoer the prospect o growth in new areas ocommunications as each becomes viable.

Finally, a lot o people love the idea o earning a

strong dividend, but they also want a stock that canappreciate. Its hard to nd the best o both worldsin any market, least o all a stock market as rocky asthe one weve experienced over the past year. But Ihave a good candidate.

The stock is Abbott Laboratories (ABT).Investors tend to look at pharma stocks and thinksleepy trade or they buy them because theybelieve theres growth, eventually, in the agingpopulations o the United States and Europe. Andtheyre right, but Abbott could see growth both

now and someday as well.Its a big rm, selling products into 150

countries. But only a third o sales come rom theUnited States. Another third is rom developedoreign economies, such as Canada, WesternEurope, Japan, and Australia. And a ull 40 percentcomes rom emerging market countries, whichcan be quite a boost as those economies grow intomiddle-class drug consumers.

Actually, its important to note, at the start o

2013, the company split into two. The new split-orm is called Abbvie (ABBV) and it came out othe gates with a 40-cent-per-quarter dividend. Itsocus is on biotech while Abbott Labs stayed ontraditional, diversied pharma, diagnostics, andnutrition products.

Abbott has been a dividend leader and a greatperormer within the context o the S&P 500, and Iexpect that to continue. Whats more, its the kind

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o stock people stick with in good times and bad. People will give upa lot o things beore theyll skip medications they need, so expectcontinued dividend strength here, not just in Abbott but in bothcompanies.

I you would rather not buy single common stocks in suchan unpredictable market, one way to grab the top o the dividendstock market is to buy into an ETF such as PowerShares Dividend

Achievers Portolio (PFM). This und owns an array o well-knownblue chip stocks that have maintained their dividend streams or atleast 10 years, including IBM, Chevron, Procter & Gamble, Johnson& Johnson, ExxonMobil, Coke, Wal-Mart, and others.

YourAconPlanI hope this report has helped open your eyes to opportunities

that lie beyond the typical stocks and bonds mix that so manynancial advisers push on us. Remember, brokers get commissionsor your trading activity. The more the better, in their view. The wholebusiness model revolves around constant, pointless trading activity.

Thats part o the reason (just part) that I oen recommendAershock Investors use ETFs over individual stocks. Most o themajor brokerages oer them. They are liquid and easy to buy and sellThey are tax-efcient in a way that a common stock simply cannot be

And, importantly, they are inexpensive. ETF ees are normally atiny raction o, say, mutual und ees, and you can buy and sell manyo them commission-ree as well. Not surprisingly, you never hearabout them rom your broker because his or her living depends onthose commissions.

That said, whether stock, ETF or other nancial instruments, the

most important thing is to take proactive steps with regard to yoursavings, investments, and nances. Dont make the mistake so manyothers are making just waiting idly with blind aith in the marketsand the world leadership currently at the helm, assuming everythingmight just work out all right. Thats a very nice, comorting thought but a very dangerous one as well. o

Robert Wiedemer

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2013 The Atershock Investor Report. AllRights Reserved. The Atershock Investor Report isa monthly publication o Newsmax Media, Inc., andNewsmax.com. It is published or $99 per year andis oered online and in print through Newsmax.comand Moneynews.com.

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at P.O. Box 20989, West Palm Beach, Florida33416. To contact The Atershock Investor Report,send e-mail to: [email protected]/Customer Service contact (888) 766-7542 or [email protected]. Send e-mailaddress changes to [email protected].

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Financial PublisherAARON DeHOOG

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Editor

MICHAELBERG

Art/Production DirectorPHILARON

DISCLAIMER: This publication is intended solelyor inormational purposes and as a source odata and other inormation or you to evaluate inmaking investment decisions. We suggest that youconsult with your fnancial adviser or other fnancialproessional beore making any investment. The

inormation in this publication is not to be construed,under any circumstances, by implication or otherwise,as an oer to sell or a solicitation to buy, sell, or tradein any commodities, securities, or other fnancialinstruments discussed. Inormation is obtained rompublic sources believed to be reliable, but is in no wayguaranteed. No guarantee o any kind is implied orpossible where projections o uture conditions areattempted. In no event should the content o thisletter be construed as an express or implied promise,guarantee or implication by or rom The AtershockInvestor Report, or any o its ofcers, directors,employees, afliates, or other agents that you willproft or that losses can or will be limited in anymanner whatsoever. Some recommended trades may

(and probably will) involve commodities, securities,or other instruments held by our ofcers, afliates,editors, writers, or employees, and investmentdecisions by such persons may be inconsistentwith or even contradictory to the discussion orrecommendation in The Atershock Investor Report.Past results are no indication o uture perormance.All investments are subject to risk, including thepossibility o the complete loss o any money invested.You should consider such risks prior to makingany investment decisions. Copyright 2013 TheAtershock Investor Report. See a Full Disclaimer aswell as a list o stocks that the Senior Financial Editorcurrently owns by going to theatershockinvestor.com.

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