How to Profit From the Biggest Crises of 2012

Depending on how you view things, we either are in heaps of trouble
economically or about to emerge from a terrible recession. Personally, I think
its the former. I always like to have a few trades on my watch list to take
advantage of possible crises, as uncertainty creates opportunity. So in looking
ahead for 2012, Im looking to exploit other peoples woes like the good
capitalist I am. Here are three bets Id be pretty comfortable researching in
greater detail and possibly pull the trigger on: Bill Gross, of the famed PIMCO
funds, has been a bond guy all his life, and he went bearish on bonds earlier
this year. Hell froze over. You can see this either as capitulation or an
ominous warning. I am very wary of municipal bonds. Our own countrys debt crisis
has reached all the way down to municipalities. When it was revealed that the
bond insurers did not have nearly the capital necessary to make payouts on
defaulted collateralized debt obligations during the mortgage crisis, I lost all
faith in bond insurers. To me, there is an equivalent risk and higher reward
with preferred stocks . By purchasing a basket in an ETF such as iShares S&P
Preferred Stock Index Fund (NYSE: PFF ), you give yourself a 7% yield with
minimal volatility. Get out if interest rates rise significantly, though.
Underfollowed and under-read fund manager Robert Rodriguez is a genius. He
thinks were headed for more recession next year, and Congress has been inept in
its handling of fiscal policy. I agree. He hates bonds right now, except for
very short-duration bonds, and so do I. Prices are near a double-top. I think
bond prices will get hit next year, so I might short the iShares Barclays 20+
Treasury Bond Fund (NYSE: TLT ). Going hand-in-hand with our economic crisis has
been the decline of the dollar. That trend will continue. That means you can
short the dollar via PowerShares DB US Dollar Index Bearish (NYSE: UDN ). The
real question at hand is this: Why the heck is the market doing so well in the
face of really bad economic times? If you read my recent series on the Dow Jones
Industrial Average, you know about several Dow stocks that would make for good
long-term additions to a portfolio. That is the key to understanding investment
in the market going forward careful individual stock picking. Go with
large-caps in general, and only go with small-caps that are directly benefiting
from the situation. As for other systemic shocks that might or might not happen,
have your trigger finger ready for these possibilities. I expect some trigger
event to knock the market down 20%. Perhaps it will come from Europe. Or, if
Obamacare is upheld by the Supreme Court, expect the market to correct
significantly. It will be a sign that overreaching regulation and legislation is
acceptable to the High Court, and thats bad for business. However, if it is
overturned, then go long Health Care SPDR (NYSE: XLV ). Likewise, should Obama
be re-elected, the market will react badly. So look at ProShares Short S&P 500
(NYSE: SH ). If Obama is kicked out and the GOP takes over Congress, I expect a
market surge, so you could go long the market with SPDR S&P 500 ETF (NYSE: SPY
). Stay far away from financials. There might be another big shock coming to the
system. I am wary of Bank of America s (NYSE: BAC ) stability, and certain
sources tell me that the bad behavior of bond insurers, reinsurers and
investment banks hasnt changed a bit. If you want to make an aggressive bet on
this arena, double-short financials via ProShares UltraShort Financials (NYSE:
SKF ). Finally, if you really want to bet against improvement in the global
economic situation, believe Obama will be re-elected, that Europe will crater,
that commodity prices will once again skyrocket, and that the dollar will crash,
then you can short the market big-time via ProShares UltraPro Short S&P 500
Index Fund (NASDAQ: SPXU ) and ProShares UltraPro Short Nasdaq 100 ETF (NASDAQ:
SQQQ ). These babies give you 3x leverage on your short bet. Of course, all of
these are highly speculative plays based on highly speculative crises of 2012.
As always, do your own research and, for Heavens sake, use stop-losses. Lawrence
Meyers does not hold a position in any securities mentioned but may have a
position in several stocks the ETFs own. Check out InvestorPlace.coms other
looks back at 2011 and ahead to 2012 here .