By John Nyaradi - As a beautiful autumn slowly moves towards the dark days of winter, global investors will likely find themselves facing a nuclear winter of extreme danger and volatility.
Nuclear winter is the term used to describe the ice age-like temperature drops, severely cold weather, reduced sunlight and catastrophic agricultural failures that are theorized to be the aftereffects of nuclear war. In the financial world, nuclear winter will be a long period of years, even decades, of sub par growth, high unemployment, global recession/depression and a long-term secular bear market brought about by the financial equivalent of multiple nuclear blasts.
Greece is the immediate trigger point for this series of fiscal nuclear explosions. The country is said to have enough money to get through mid-November, and this weekend's meeting between President Sarkozy off France and Chancellor Merkel of Germany highlighted the absurdity of this situation as Chancellor Merkel said they would have the whole thing worked out by the end of the month. Really? So, if it's that easy, why haven't they already just made this problem go away?
What has happened instead is that the first tremors of this impending detonation came last week with the multi-billion dollar failure of Dexia Bank, and more shudders were felt with credit downgrades of more than a dozen banks in England and Portugal as well as downgrades of Italy and Spain.
But even if Greece survives the month of October, it doesn't matter. Eventual default is nearly a mathematical certainty and Greece leads the way to Ireland, Italy, Portugal and Spain, the dreaded contagion that we've all heard so much about.
Other factors at work, like the impending "super committee" budget negotiation/gridlock fiasco, the impending retirement of the Baby Boom and the enormous drag of U.S. debt and Medicare make it nearly certain that we can postpone, but not avoid, nuclear winter and a long term bear market. There, of course, will be rallies along the way, but this secular bear market started in 2000 and has, unfortunately a long way to run. A quick glance at the Nikkei Index JP:NIK +1.88% over the last fifteen years gives us an inkling of what's in store.

As investors facing a long nuclear winter, we must learn to not only survive but to prosper. So what can we do?
We can forget about all the conventional wisdom that tells us to "buy and hold," that the stock market always goes up over a long enough time frame. (It won't)
We can forget about fundamental measurements like P/E ratios and earnings and revenues which almost seem quaint in today's momentum driven world of high frequency trading and historic volatility. (Global equities markets have morphed into testosterone fueled casinos)
We can forget about Congress, the White House or the Federal Reserve pulling out a magical "save" as they have so many times in the past. (They're out of bullets)
Instead, what we can do is take advantage of the enormous opportunities that nuclear winter will present. Tremendous dislocations and upheavals generate tremendous opportunities; just think back to the end of World War II or the stock market's recovery from the depths of the financial crisis in 2009.
If Europe manages to "kick the can" down the road one more time, we will likely see a very strong rally into the end of the year and so obvious possibilities would be fast-moving exchange traded funds like iShares Russell 2000 Index Fund IWM +0.32% or PowerShares QQQ QQQ +0.78%
However, when, not if, Greece sets off the atomic explosion that leads to nuclear winter, ETFs like the ones that have done well during the recent downturn would offer the greatest opportunity. For instance, I currently have unrealized gains of 28.5% in iShares Barclays 20+ Year Treasury Bond Fund TLT -0.52% held in a personal account since early April, and have also found great success with put options in Financials Select Sector SPDR XLF -0.16% that have yielded double- and even triple-digit gains over the last several months.
Nuclear winter will come, but winter will bring unparalleled opportunities for generational wealth to those who are properly equipped. And, in the financial world, as in nature, after a long, hard winter, we will one day again see the first robins of spring.
Disclosure: John Nyaradi and Wall Street Sector Selector actively trade a range of exchange-traded funds and positions can change at any time. Current positions include TLT, SH, SEF, EUM, RWM, EFZ, SDS, SKF, and put options in XLF and SPY.
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NDLR - le texte original contient de nombreux tableaux et graphiques.