There is Never One Cockroach.

There is never one cockroach.

It’s not the first cockroach that homeowners worry about, it’s the hundreds or thousands they cannot see that they worry about.

In this country, we started seeing our first “financial” cockroaches in the likes Washington Mutual in 2008.

Two weeks ago, the lights were turned on in Europe and we saw Dexia, our first European Banking cockroach, scurrying away. Dexia was a French/Belgian bank that was formed only 15 years ago and was Fortune’s Global 500 number 49 in the world based on income in 2010.

So what happened?

Ultimately, Dexia was a bank that couldn’t even survive a 21% decrease in Greek sovereign debt devaluation. Most experts think Greek debt will eventually be devalued 80 to 90%.

Dexia had around $181 billion dollars worth of bad loans that French and Belgian governments will now have to deal with. Belgian authorizes said they would take responsibility for 61% of all the losses or what is the equivalent of 15% of the Belgian GDP. The US equivalent number would be a $2.25 trillion bailout of one bank. Gulp!!

So what does a bank six thousand miles away that no American has ever heard of have to do with your 401(k)’s and brokerage accounts?

A lot.

Europe is in a sovereign debt crisis. EU banks assumed that AAA rated sovereign debt meant something (they thought they were going to get paid back) and now it turns out the books were cooked the whole time. All the Mediterranean countries were fibbing, big time.

There is a 4 out of 5 chance that in the next 120 days we will have another large financial institution, a Lehman Brothers-type, failure in Europe. If that happens, the following is also possible:

-The US Dollar will surge up;
-US Government debt will surge upward (read: interest rates will fall even farther);
-All stocks, okay… 99% of stocks, will sell off;
-Gold/silver will get sold off too, not because institutions want to sell but they will have to sell to meet liquidation of funds by their clients;
-After the “panic”, gold will come back quickly and then silver will to;
-After 60 to 90 days the US Dollar will continue its long downward slide into the abyss.

So what can you do?

1.)    Right now cash is king. Make sure you have cash set aside for what might be the buying opportunity of the year.

2.)    If you own any stocks, look to see how they have weathered the past 90 days. If they are down more than 25% in the past 90 days then they have officially failed the stock market stress test. Get rid of them.

3.)    Go with the sectors that have done well over the past 90 days. These will continue to do well:

-Utilities
-Cigarettes
-Alcohol
-Auto-parts
-Fast-food/processed food
-Major drug manufactures

We know the cockroaches are all over the financial institutions in the US. The cockroaches are just starting to be revealed in the EU. I am afraid that Raid™ will not be enough.

Your best defense is a portfolio that can adapt to what is happening in the market today and not what you hope to have happen. So many people are still using portfolio strategies that were designed to grow money only if the stock market goes up. Imagine if you had a portfolio that didn’t matter what the market did…it just adapted to it. When you start to get curious about a different way to protect and grow your money, check this out.

The Millionaire’s Academy Mentoring Program starts in two weeks. Do you have what it takes?

Together, we are growing and protecting your wealth,
RC Peck

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