by Shae Smith<\/p>\n
\u2018The Fed said economic conditions \u201care likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.\u201d This is the first time since the introduction of the \u201cextended period\u201d language in March 2009 that the Fed has assigned a specific time frame to it.\u2019<\/em> \u2013 Bloomberg News<\/p><\/blockquote>\n
Mid-2013\u2026 That\u2019s two years from now! And five years after the Fed began printing money and lowering interest rates.<\/p>\n
But, that\u2019s not all Bloomberg has to say on the matter.<\/p>\n
Bloomberg\u2019s Caroline Baum wrote, \u2018Some economists suspect that yesterday\u2019s verbal gymnastics are a prelude to some form of renewed action on the part of the Fed\u2019<\/em>.<\/p>\n
There\u2019s a good chance the Fed is just warming up the markets for QE3. After the dismal failure of QE1 and QE2, surely third time\u2019s a charm. Right?<\/p>\n
So, what\u2019s an investor to do? Watch as central bankers let inflation take over the markets? Or do you \u2018wait and see\u2019 what happens before you feel it\u2019s \u2018safe\u2019 to jump back in?<\/p>\n
The endless talk about a bear market would send the toughest investor into the cave.<\/p>\n
And in the medium term, things aren\u2019t going to get much better.<\/p>\n
This isn\u2019t the bull market of five years ago.<\/p>\n
You\u2019ve heard before that this is a \u2018post-credit-crisis environment\u2019. But how do you invest in this market?<\/p>\n
Sure, we all know about the credit problems. And the week\u2019s action in the market has proved the crisis hasn\u2019t gone.<\/p>\n
All those printed dollars pumped into the economy have just left bigger problems.<\/p>\n
And Bloomberg\u2019s Baum admits that \u2018Today\u2019s economy\u2026 appear[s] to be drug resistant\u2019.<\/p>\n
The drug of choice has been \u2018printing\u2019 the problems away.<\/p>\n
But the central bankers could turn the money printing gizmo to full speed and the problem would still be here.<\/p>\n
As an investor, what can you do?<\/p>\n
Don\u2019t get out of the market \u2013 change how you invest<\/strong><\/p>\n
Don\u2019t let the printing presses stop you from investing.<\/p>\n
It\u2019s not the time to get out of the market.<\/p>\n
It\u2019s just time to change your approach.<\/p>\n
Editor of Australian Wealth Gameplan<\/a><\/em>, Dan Denning has prepared his readers for this market sell-off. In a recent Australian Wealth Gameplan<\/em> weekly update he wrote:<\/p>\n
\u2018Believe it or not, I think the coming years will be much better for investors\u2026 The days of front-running the Fed and boosting returns with margin accounts will be over.\u2019<\/em><\/p><\/blockquote>\n
Change is happening in the economy. And how companies spend their cash will be different in the future.<\/p>\n
He points out:<\/p>\n
\u2018In an economy with double-digit credit growth, spending power equals income plus debt. Even with incomes growing weakly in the last 20 years, huge debt growth equated to huge spending power. This translated into outsized corporate earnings and higher stock prices.\u2019<\/em><\/p><\/blockquote>\n
Simply put, companies that lived beyond their means in the past won\u2019t be able to do that in the future.<\/p>\n
Dan adds:<\/p>\n
\u2018In a low-growth, deleveraging economy, spending power equals income minus debt repayment.\u2019<\/em><\/p><\/blockquote>\n
Low debt companies to add to your watch list<\/strong><\/p>\n
This is the key to Dan\u2019s investing strategy.<\/p>\n
Companies with low or no debt are on his watch list.<\/p>\n
And because of the lack of access to credit, companies will have lower profits.<\/p>\n
They\u2019ll have to be smarter with how they spend their cash. Unlike past years, companies won\u2019t be able to rely on debt for growth.<\/p>\n
That could mean lower capital gains for investors. But from now on you\u2019re more likely to invest in companies with sound businesses rather than those that have borrowed billions to quickly expand.<\/p>\n
But it will take some time. And investors will have to adjust to this \u2018new normal\u2019.<\/p>\n
This doesn\u2019t mean you can\u2019t profit!<\/p>\n
It\u2019s just changing how you look at companies.<\/p>\n
Consider this. Based on market capitalisation, five out of the 10 biggest companies on the Australian market are, wait for it\u2026 financial firms! That shows you the impact of credit growth.<\/p>\n
Dan has repeatedly told his subscribers that \u2018global credit growth is in a long-term downtrend\u2019. Which just convinces Dan further that any company relying on credit expansion will suffer.<\/p>\n
And this is where his formula for \u2018business and investment success in a deleveraging world\u2019 <\/em>becomes your future investment tool.<\/p>\n
Speculation buys have gone out of the window.<\/p>\n
The market has changed. Credit-driven growth belongs to yesterday.<\/p>\n
As the market moves on, you need to change your investing style.<\/p>\n
To find out the strategy Dan is recommending to his Australian Wealth Gameplan<\/em> subscribers, click here\u2026<\/a><\/p>\n
Regards,<\/p>\n