Investor Alert: Stay Defensive

The stock market continues to go nowhere. As we head into the fall, Independent Living readers should brace for what is likely to be a volatile and dangerous period in equity markets.
U.S. Capitol
Of course, we do have a very important election coming up – and depending on the outcome, the markets could experience a significant rally in November and December, particularly if Republican gains exceed expectations. But the more immediate political concern for investors is the fact that Nancy Pelosi’s over-spending, hyper-regulating Congress returned last week from its summer hiatus.
That’s bad news for stocks. Academic studies by finance professors have shown that since the inception of the Dow Jones Industrials Index, 90% of the Dow’s cumulative gains have occurred on days when Congress was out of session!
According to the Hulbert’s Financial Digest, “Congress is the biggest downer for the market when a large percentage of the public disapproves of the job Congress is doing.”
Unfortunately for the bulls, the most recent NBC/Wall Street Journal poll pegs Congress’ approval rating at just 21%. And an unprecedented and overwhelming majority – 72% of the public – expresses outright disapproval of the nation’s most powerful body.
September/October: When Financial Markets Often Get Slammed
Also looking bleak is the nation’s economic picture, with unemployment remaining intractably high, foreclosures rising, and building permits and other leading indicators plunging. Problems in the financial sector that were swept under the rug while many Wall Street watchers were on summer vacation may make an ugly reappearance this fall.
The next financial crisis, predicts Pierre Lassonde, former president of Newmont Mining and current Chairman of Franco-Nevada Gold, could be “in September. That’s when the [email protected]#% hits the fan.”
Like Lassonde, we at Independent Living don’t believe in sugar coating the realities that drive the markets. But we are optimists insofar as we believe it is possible to make money in this treacherous environment – or at the very least preserve capital through strategic asset allocation that includes unconventional investments.
That’s why, on Tuesday, we will be sending you a bulletin outlining 5 ways to rise above a down market. Gold – even as it blasted through last week to new all-time nominal highs — is one fantastic option. But there are several others. Please stay tuned

Beware of “Guaranteed” High Returns on Annuities
Art B. writes: Would you recommend buying into annuities now guaranteeing 6% returns?
Probably not, but you did not give me nearly enough information. If it’s a lifetime annuity, it depends on the person’s age, gender, and whether there would be joint beneficiaries. Meanwhile, there are many other kinds of annuities.
Keep your guard up whenever you encounter annuity pitches. Of course, the financial strength of the issuing institution is extremely important. And annuities almost always come with “surprise” costs, including hefty penalties for cashing out.
What’s more, fixed annuities offer little upside in this low-yield environment, and their value to you as a source of income will be greatly diminished when inflation heats up as we expect.

Higher Interest Rates Would Make
Government’s Financial Crisis Much Worse
Oliver N. writes: Do you think the interest charged governments is the reason for the huge deficits? You have the best newsletter that I’ve seen by far. Thanks again.
Without a doubt, the exceptionally low rates of interest are enabling government to take on a much larger level of debt than it would be able to do in more normal times. But by borrowing 40 cents out of every dollar it spends, the federal government is saddling future taxpayers with the burden of enormous debt servicing costs – even assuming interest rates rise only modestly from here.
The notoriously optimistic Congressional Budget Office projects that by 2017, interest payments on the national debt will balloon to $650 billion – a bigger share of the federal budget than all non-defense discretionary spending combined. Before that point, though, Congressional spending addicts will likely have already doomed the nation to either an outright default or (more likely) a massive inflationary spiral that will prolong and extend our indebtedness and wreck the currency in the process.