Financial Survival 101 thru 401...

With the capital markets acting in such an unpredictable manner I thought I'd share my thoughts and experience with those that don't have a clue as to how to survive the "perfect storm"...!

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If possible high interest debt needs to be liquidated first by either debt consolidation or using any line of lower interest home equity credit that may be still be available to folks that negotiated such lines of credit. Most institutions have cut off equity lines of credit even if they’ve been pre-negotiated. The bottom line is to pay down your retail credit debt asap.

As far as the market is concerned no one should be in the market at this time and should be flat in U.S. Treasury only Money Market funds or safe rated banks short term; under one year CD’s not to exceed 100g’s per account. Granted the yield isn’t very good, but in these times as Will Rogers once admonished during the Great Depression… "People shouldn’t be so concerned with the return on their money as the return of their money”…!

Stay away from bonds of any type because as rates rise as they are now your bonds will take a hit and this includes bond funds with an intermediate term or long term duration concerning their portfolio management. Duration represents the average maturity of the bonds within the portfolio. Higher duration funds have higher yields but risks too relative to rising interest rates. Short to intermediate term is the best bet in U.S. Government "only" bond funds, but I'd advise people to keep their powder dry concerning bonds until this storm settles down to a reasonable "chop"; ie., volatility.

In the event one feels they must be in the market then there’s a large number of inverse ETF’s; ie., "down market" Exchange Traded Funds. Some are even double leveraged meaning if the market goes down 10 percent the reverse ETF increases by 20 percent etc. The way to trade inverse ETF’s is to buy them on frenzied ralleys towards previous market highs then to liquidate the position once the market drops to new lows which is when they will have achieved their greatest price appreciation as a function of the drop to new lows. But one must be nimble and be ready to sell out these inverse instruments upon market close of a major down day; then wait of the next ralley to overhead resistance to buy more of these inverse type ETF’s etc. These inverse ETF's also make for a great vehicle to hedge a long stock portfolio with which you have aversion to liquidate. It's like buying insurance, but unlike options do not decay in value with time. I'll provide a link to a site that will provide listings for all ETF's available on the exchanges.

http://seekingalpha.com/

There’s inverse ETF’s for the DOW30, most market sectors as well as World Indexes. Bear markets demonstrate incredible volatility on a day to day basis; ie. very choppy waters indeed. At this point in time there are least 50 listed inverse ETF's both with single, short leveraging and double short leveraging. ETF's are traded like stocks and be bought and sold throughout the market day unlike mutual funds which are marked to market upon close.

As far as bank accounts are concerned people need to go to http://www.Bankrate.com or http://www.TheStreet.com to find out the safety rating of their bank, S&L, credit union, insurance companies and health care orgs. People should keep their money in institutions with a B or better rating up to A+ which is extremely rare in these times. Also its important to continue to monitor the safety of one’s banks, credit unions etc. on a quarterly basis.

The Treasury has just indemnified FDIC and FSLIC insured accounts to $250,000 per account holder through December of 2009. I'd still recommend to err on the side of safety and not to exceed the original 100G level per account holder, but to spread your holdings among safe rated; ie., B or better rated banking institutions as discussed.

Annuities either fixed or variable are a high risk game in these times because they are not guaranteed by the FDIC. They generally depend on state sponsored insurance backing and in these times this type of indemnification is questionable due to the insolvency of most state balance sheets. These insurance companies will have invested your money in the markets and one can see where they are headed.

Honest market experts are predicting a final DOW shakeout to the 7200 level, if so then there's many more trillions of dollars to be pruned from these bloated markets, both domestically and globally. The chickens have come home to roost so to speak! They are gauging the final market levels to having shrunk to equivalent levels of the devaluation of all banking sector stocks which makes sense to me. The availability of money drives the market. The large center banks had the money both in deposits and stock valuations, but much of their stock valuations have gone up in "smoke" along with large portfolios of "non-performing" home and retail credit based loans.

As a last resort then bankruptcy is the avenue to follow although financially traumatizing it provides relief for debtors and a way for them to start anew. Corporations do it so all the time, folks can too. : ) There’s no shame in it. It’s a time honored process and totally legal other than the social stigma that unenlightened peasants might suffer for having done so.

My advice is to stay away from options since all they will do is enrich your broker in terms of commissions. You are not only trying to call the price right, but the market direction too, along with fighting time decay of the option which causes it to decrease in value on a daily basis to its expiration. The most important thing to study if one does buy options or complex option positions is to study the underlying instrument against which they are struck and base your option play on the underlying action rather than foolishly buying out of the money options and hoping for a single much less a home run. It will be like watching paint dry with the end result the speculator having lost their investment in the option.

I am not a financial adviser, but am a lifelong investor and am self taught in the markets from having having traded stocks, commodities and options traded against these type instruments.

Do not trade with money you cannot afford to lose. It is recommended that a person have a fundamental knowledge of the markets and how to trade stocks before getting involved with ETF’s either straight (long market) or reverse (short market) instruments.

I hope my ideas and suggestions help.

Carl Nemo **==

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