How to Build a Fiscal Cliff Portfolio (Part 1)
Today, I’m taking my marching orders from an irate Wall Street Daily reader…
I pretty much told everyone to keep calm and carry on. Why? Because the “walls of reality are closing in” on Congress, as one Washington insider put it. And a compromise is the only option. Otherwise, the U.S. economy crashes. Hard.
Apparently, that wasn’t enough to assuage Wayne F.’s fears, though. He informed me via email that “political information has no value unless it’s accompanied by specific investment suggestions and the reasons behind those suggestions. Tell me to buy or sell something – and tell me why. If you can’t (or won’t), then your newsletter is of no use to me.”
So today, even though consensus continues to build that a compromise will, indeed, be reached, I’m going to provide an entire portfolio of investments one could make to protect against the U.S. economy plunging off the Fiscal Cliff.
Hopefully it will satisfy Wayne and any other Nervous Nellies in the crowd…
Gold, Guns and Canned Goods
- Gold: As I revealed last Thursday, gold and silver are the top two performing investments since President Obama was elected in 2008 (which also coincides with the start of the Fed’s aggressive quantitative easing practices).Well, that outperformance isn’t likely to end anytime soon if we fall off the Cliff. Why? Because the Fed will be forced to crank up its money-printing efforts to revive the economy (again).So go ahead and throw a few bars in your rucksack before you head for the log cabin in the woods.
- Guns: Millions of Americans can’t be wrong. After years of brinkmanship and inaction, they’re convinced that politicians are leading us down a path of destruction. Thus, they’ve been taking up arms, just in case. Guess what? That emotion – and the gun-buying activity – is only going to hit fever-pitch levels if we fall off the Fiscal Cliff. Heck, the number of background checks on people applying to buy guns, an indicator of future sales, already jumped 18.4% in October. And as guns fly off the shelves, so should shares of Sturm, Ruger & Co. (NYSE: RGR) and Smith & Wesson Holding Corporation (Nasdaq: SWHC).
- Canned Goods: Everybody needs to eat. No matter what’s going on in Washington. And if we’re headed for a true disaster, we’ll need to stockpile non-perishable items, which makes Campbell Soup (NYSE: CPB) a smart bet. It’s the world’s largest producer of soup. Shares are cheap at less than 13 times forward earnings. They also sport a modest yield of 3.3%, to boot. Other consumer staples stocks wouldn’t be a bad bet either. Like Kimberly Clark (NYSE: KMB) and Kraft Foods Group (Nasdaq: KRFT).
Speaking of the Woods
Once we’ve stockpiled the necessities for our deep forest retreat, we’d be well served to buy up some trees, too. Seriously.
“No matter what’s going on in the world or the market, trees keep growing, silent and unattended.
“The average North American forest produces about 8% more timber every year. And as trees get larger, they command premium prices, too.
“It’s also worth noting that not even natural disasters can undermine timberland’s value, as damaged timber can still be sold. For example, after Mount St. Helens erupted, nearly 80% of the scorched timber was still suitable for sale.
“So, simply put, all that’s required for trees to increase in value is the passage of time.”
Timber investments also provide an extra dose of inflation protection. During the bout of runaway inflation we experienced from 1973 to 1981, timberland was one of the top-performing hedges, increasing by an average of 22% per year.
The easiest way to invest in timberland via the stock market is through the iShares S&P Global Timber & Forestry Fund (Nasdaq: WOOD).
Stay tuned for tomorrow’s column where I’ll finish building our Fiscal Cliff portfolio with three more critical investments.