Stay liquid, flush with cash in these tumultuous times

The supply of integrity in Illinois politics is falling as fast as prices Americans pay for all sorts of goods and services.
And it seems both are staying true to this physical law of nature: Once a trend is in motion, it tends to stay in motion.

Have you been to the grocery store lately? Prices are down for everything, and in some cases by significant amounts. This
can be summed up by taking a look at the exchange-traded fund DBA that I highlighted last year. It is a basket of corn, wheat,
soybeans and sugar that has lost half its value since summer.

The producer-price index dropped 2 percent in November, and you can see in everyday life how those falling prices are being
passed on to consumers. All of this makes perfect economic sense. The recession is causing producers to get more creative
about ways to increase business. One quick way is to lower prices.

These falling prices make for a wonderful environment for someone like me. Cash becomes more valuable in a deflating economy,
and anyone who has been reading this column over the last year knows I have been screaming about conserving cash. This cash
hoard also pays off when the equity markets are getting ready to launch again (which will precede the upturn in the economy)
and I will load the boat with stocks.

But most of you still refuse to acknowledge this new reality, and your success is pinned on a steadily inflating and slowly
growing economy. So, before you get too excited about the lower prices you are paying for everything, take a minute and think
about the ramifications if this trend is truly sustained. The lost decade in Japan might be only the trailer.

With that bit of cold water on our faces, we can turn to thinking about ways we can profit from what is happening around us.

Liquidity is king! Stay away from longterm, illiquid commitments until the equity markets really flash sustained levels of
demand.

I predicted this current rally spot on, and it has a chance of continuing for a bit. But odds are this bear market is not
over yet. Even if Dow 7,500 was in the vicinity of the final low, we may have to go back there a few times before selling
truly dries up. And that process may take several more months. In addition, there is a growing possibility that the next bull
market in stocks may be only a cyclical run of a few years. A highly liquid stance will keep you ready for either situation.

Another necessary step is to check on your gold and silver holdings. In general, commodities have been smashed along with
global equities over the last several months. Oil is down more than 70 percent from its June 2008 peak. Stocks are down an
average of 45 percent around the world, but gold is down only 19 percent from the all-time high set last spring.

The slightly increased level of government borrowing seems to be ringing a few bells in parlors of the ultra-rich. Global
currencies can’t all fall at the same rate at the same time because of their offsetting nature. But over time, they all can
lose value in an alternating, stair-stepping fashion.

I look at gold as the ultimate win-win for the next five or more years. When the markets begin heading higher, gold and other
commodities will go right along with them. If this torrid pace of idiotic government spending ends with us washing up on the
rocks, gold may be the only thing that goes up.

___

Hauke is CEO of Samex Capital Advisors, a locally based money manager. Views expressed here
are solely the writer’s. Hauke
can be reached at 203-3365 or [email protected]

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