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The Markets in 2013: Bonds Stink and Other Critical Observations

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Making sense of the 2013 investment climate means considering trouble in the bond markets, social unrest, and geopolitical turmoil.

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Commodities

For several years, there have been calls that the USD will come under pressure due to the above-described fiscal mess. Each year it turns out to be overblown, and this year may be the same. But, given the political and fiscal mess, it can't hurt to have some of your funds in metals. No big bets, just diversification. Sell some covered calls on them in peaks to generate income, because these assets pay no dividends.

I have yet to find a commodity investment that is not laden with unpleasant tax consequences, like surprise K-1s and passive income and losses. I stay away from these vehicles despite their intuitive appeal. If you want commodity exposure, try the agribusiness, oil, or consumer products equities. They aren't great correlates, but they may show some sympathy with commodity movements.

Conclusion

Increased taxes, increased government spending, and continued political brinksmanship are near certainties. There will be volatility, there will be natural disasters, and there will be inflation. More likely than not, interest rates will come unglued from their artificial level. Position your investments to take advantage of:
  • Equity volatility (option-based strategies)
  • Rising rates (short term bonds, CDs, money markets)
  • Price inflation (TIPS, Commodities, Metals)
Hopefully, there will be happy times in your families, and joys in life that supersede any economic turbulence of 2013.
No positions in stocks mentioned.
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