I am slowly, over the next few months going to convert some assets & investments currently in bonds into commodity related investments that governments cannot print or manipulate. Right now in the short term, interest rates are going down as the fear a global double dip recession is looming more and more. The main stream media is finally actually talking about it.

This will give us a golden opportunity to sell some of our bonds at a handsome profit, and gradually shift more into commodities while there is blood in the streets (in commodities). The governments around the world have given no indication yet that they are going to be fiscally responsible and will print even more money if necessary.

Therefore, we will have this debt collision Dan Cofall and I have been talking about for 2 years. It will make currency (paper money) less valuable. Therefore regular, fixed coupon bonds will be less valuable as you get paid back in paper money which will be less valuable. Again, it is all about purchasing power, NOT absolute dollars!

In the short term, we will probably have deflation, then high inflation as governments try to save their economies and re-inflate asset prices. This allocation shift will be a gradual process until I am convinced we will have inflation, not deflation. Bonds are a negotiated market, and trades are not instantaneous like the stock markets. Therefore, I want to start getting ahead of the curve and do this carefully and gradually until better information comes out and it is more obvious which way it will actually play out, deflation or inflation.

In short, you want to sell when people are bragging on the golf course how much money they made (even though they haven't sold yet), and buy when there is blood in the streets.

There is still pulling back in virtually all commodities and they are going down significantly as fear of global demand shrinking is spreading. Global deleveraging because of the debt crisis and the China slowdown will certainly have a negative effect on commodities and specifically miners. This is being priced in as we speak. Again, this will give us an opportunity even though it won't feel right when we do it.

In particular, I will be looking for a good entry point in Silver. Another related area will be the miners, both for precious metals and broader metals. An easy way to play this, again, is the SPDR Metals and Mining (XME) and the Market Vectors Gold Miners (GDX). Two individual stocks which support the miners with large, equipment in Joy Global (JOYG) and Bucyrus International (BUCY). I WOULD NOT PURCHASE YET, WATCH AND KEEP AN EYE ON!

These sectors are going through almost a near vertical downward correction. I have attached a graph of Joy Global (JOYG) for you to study. It blew through the trend line and is quickly coming to a support line. It will be worth watching if it breaks through support.

I do not know the exact timing of this fundamental shift, but you need to be preparing to make this shift in case it starts to unfold more quickly than people realize. We can always put our plans on hold if need be, but we want to have a plan in action already just in case it happens sooner. You do not want to be reacting under fire on adrenaline. You want a predetermined plan of action - actually a few different plans of action for different scenarios - so as it unfolds you are ready with a well thought out, logical plan.

Keep studying,
Dan Stewart CFA®