In our last article we discussed the problems of Europe.  If we are correct, and Europe is doomed, what can the average person do to protect their investments first, and possibly even make money from the crisis?

Here are 5 ideas.

Don’t hold Euros

Firstly, don’t hold Euros or Euro assets unless necessary.  The currency is very likely to fall in a crisis.

Borrow, cautiously, in Euros

Secondly, its fine to borrow in Euros since its value might fall, which is attractive if you earn in RMB or USD.  A word of warning however; do make sure that you debt levels aren’t too high compared to the value of your house (or security).  In a true Euro crisis banks will have problems and may start to call the “higher risk loans” and you don’t want to be part of that group.

US Treasuries

Thirdly, the asset of choice in a crisis is US treasuries, so consider these when the end is looking close.  A word of warning on these assets also.  US treasuries aren’t cheap right now.  Their yields across many maturities are very low already so there is no rush to get into these securities unless the train wreck appears imminent.  Or just hold USD cash.  Swiss Franks, due to their commitment to peg their currency to the Euro, isn’t quite the safe bet it once was.

Short Funds

Fourthly, for the slightly more confident – is to buy a short fund, exchange traded of course.   All you need is a share or brokerage account with access to the United States* and you too can make money when the market falls.   Short ETFs rise when the market falls, since the fund consists of short positions and derivatives that make money in that scenario.  It’s easier than trying to figure out how to short sell (and in parts of Europe, short selling is plain impossible anyway) and its far less tricky than managing derivative positions.

So what exchange traded funds should I buy? 

Firstly, Short European stocks ETFs like Proshares Ultrashort Europe (EPV) or you could buy a fund that specifically shorts financial stocks, such as ProShares UltraShort Financials (SKF) or Direxion Daily Financial Bear 3X Shares (FAZ).   Or you could simply buy a short Euro currency fund like ProShares UltraShort Euro (EUO) or Market Vectors Double Short Euro (DRR).

Use Short Funds with Care

Keep in mind that many of these funds are leveraged, on steroids if you will.  They are designed not just to do the opposite of the index, but the opposite X2 (in the case of ‘Double Short’) or three times (in the case of ‘UltraShort’).  For this reason they should be used very cautiously.  They can win bigger and lose bigger too.  Also, keep in mind that the long term trend of all stock-markets is up, so you will be betting that long term trend will be broken in the short term.   This is not a strategy for the core of your retirement savings.  If you don’t have the time to manage your holdings, just stick with strategy one and maybe strategy three.

*We like Interactive Brokers or Capital Platforms in Hong Kong, or Internaxx in Luxembourg.

About Caterer Goodman Partners

Caterer Goodman Partners is a Shanghai based wealth management firm established with a clear vision to provide a new level of personalized financial planning services for expatriates in Asia. Our financial advisors provide guidance for our clients in all areas of investment, specialising in managed accounts, money-market funds, retirement planning and alternative investments. At Caterer Goodman Partners, we offer our advice and experience to provide low cost, tax-effective and simple solutions to match our clients’ interests.

About Owen Caterer

Since graduation Mr Owen Caterer has worked with the Queensland Premier's Department in Trade Facilitation and then as a financial adviser in Shanghai from 2005 until 2010.  He then rose to Senior Adviser, then Business Development manager and then to Chief Investment Officer responsible for portfolios to a value of US$280 million across Asia. Following that Mr Caterer left to found his own firm with a partner in the financial advisory and wealth management area.   This focused on developing China and Asia's first fee-based financial advisory (rather than commission-based). This has grown to now have 8 staff and and managing almost US$35 million for clients throughout Asia. This business success was recognized as a finalist in the 2013 ACBA in the Start Up Enterprises category and are one of a small number of foreign managed firms to have a full asset management license in China.  Owen has also been active in the community volunteering for the Australian Chamber of Commerce in Shanghai and acting as the Vice-Chair of the Small Business Working Group (2012-2014) and as the Co-Deputy Chair of the Financial Services since 2013 until the present. They have continued to grow their business and have now been selected as a small group of companies who are platinum members of the Australian chamber of commerce. The achievement they are most proud of is their efforts to reform the financial planning industry in China and push it away from a hard-sales commission driven model to a more ethical management fee and long term customer service model.   Owen has a Graduate Diploma of Applied Finance from the Securities Institute of Australia of which he was a member as a Fellow of Finance for many years and also has an undergraduate degree from Griffith University in International Business.  Owen's interests are tennis, running and his wife and two children.  He speaks fluent Chinese, first arriving in China in 1997.