3 ETFs For Roubini’s “Perfect Storm”

by on August 7, 2012 | Updated August 27, 2012 | ETFs Mentioned:

Dr. Doom has diagnosed the global economy once again, except this time the symptoms are pointing to something far worse than many pessimists could have expected. Nouriel Roubini, perhaps best known for predicting the 2008 financial meltdown, recently outlined his forecast for 2013, which looks to be centered around a towering list of uncertainties. He made his prediction for the “Perfect Storm” back in May of 2012, citing a combination of four factors that would inevitably lead to the next great collapse [see also 4 Commodities To Buy Before Roubini's Perfect Storm].

Roubini predicted that slowing growth in the United States, growing debt troubles in Europe, a slowdown in China, and intensifyingFile:Rolling-thunder-cloud.jpg political gridlock with Iran would come together to create a “Perfect Storm” for the world economy. The frightening thing is that all of the cited factors are in fact slowly coming together. The United States has been dealing with mixed economic reports from both the labor and housing markets, while lawmakers in Europe have yet to embark on a comprehensive plan to bring unity and stability to the currency bloc [see also Simple (But Effective) Safe Haven ETFdb Portfolio].

Furthermore, inflation has cooled off in China, perhaps suggesting that its streak of hot growth may have already seen its best days. Lastly, the situation in Iran has heated up once again, leading to volatility in the crude oil market while at the same time pointing to gloomy days ahead for those following Roubini’s prediction. Convinced that central bank stimulus programs are ineffective, Roubini is confident that another meltdown of the financial markets will surely follow as fragile fundamentals slowly and surely prevail.

If Roubini’s “Perfect Storm” unfolds as predicted, then even the biggest umbrella in the world won’t do you or your portfolio any good. Below we outline three ETFs that could thrive as global economic growth expectations deteriorate, keeping in mind that virtually no asset class will be safe if the “Perfect Storm” actually strikes [see also How To Play A Treasury Bubble With ETFs].

1. Physical Precious Metal Basket Shares (GLTR)

Precious metals have demonstrated their ability to take on safe haven appeal when clouds of uncertainty gather over the market. The appeal behind investing in this corner of the commodities market is fairly straightforward; precious metals are known for preserving capital over the long-haul as well as offering a hedge against rising prices, two “risk off” characteristics that can thrive when volatility strikes on Wall Street.

GLTR is physically-backed, effectively steering clear of the nuances associated with futures-based commodity products. Each share of GLTR holds a basket of gold, silver, platinum and palladium in fixed weights: 47.6% of gold, 40.3% of silver, 7.3% of platinum and 4.8% of palladium [see also Futures Free Commodity ETFdb Portfolio].

2. Dynamic Food & Beverage (PBJ)

The inherently defensive nature of consumer staples makes investments in this asset class quite appealing in times of economic turbulence. As the global economic backdrop becomes gloomier, investors will likely scale back on risk before entirely pulling out of the market. One of the most common corners for those looking to weather an equity market storm is the food and beverage industry, offering up a viable defensive thanks to inelastic demand for everyday goods.

PBJ holds 30 U.S. food and beverage companies, including industry bellwethers like Yum Brands, Kraft Foods, McDonalds and Archer-Daniels Midland, in its top ten holdings. The top three allocations by sub-industry include packaged foods and meat, restaurants, and soft drinks companies.

3. ETRACS Fisher-Gartman Risk Off ETN (OFF)

This ETN makes it easy for investors and traders alike to go into defense mode by tapping into a handful of asset classes that have a tendency to appreciate in times of uncertainty through a single ticker. As the name suggest, OFF allows for investors to quickly and easily scale back on risk exposure and, as such, it makes for an appealing instrument for those looking to profit from the potential “Perfect Storm” that is brewing [see also 5 ETFs For Fiscally-Sound Emerging Markets].

OFF holds short positions in risky assets like international stocks, energy and agriculture commodities, as well as emerging markets currencies. At the same time, this ETN also holds long positions in a basket of safe have asset classes, including the Swiss franc, U.S. Treasuries and German government bonds. Investors should be aware of the inherent credit risk associated with this offering given its product structure.

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Disclosure: No positions at time of writing.