Where to invest in a falling market?

In a recession 'cash is king'! This is an old maxim from the same school as 'sell in May and go away!' as many investors must wish that they had done this year.

So is it true that investment is suddenly a busted flush? Is there really nothing worth investing in right now? Actually, this does look to be one of those rare moments for global investors where opportunities have reached the end of the road.

Global equities have rallied strongly since the Iraq War last March but the rally went on for too long in the face of an obvious need to raise interest rates from record lows. Thus equities look set for a difficult period.

Bonds too are in hot water. Rising global interest rates make bond prices look expensive. As for property, well a prolonged period of low interest rates has encouraged more and more people to buy property inflating prices into a massive bubble.

So cash is your best haven, as even gold prices have fallen recently thanks to the bursting of a speculative bubble. That may change in the near future but gold investors are still licking their wounds right now.

OK but how do you hold that cash? The US dollar has lost value in recent years. However, the very factor that is undermining other asset classes right now - the prospect of rising US interest rates - should support the value of the US dollar.

After all, rising interest rates mean that savers get more money for holding a currency and thus it should rise in value, and not fall any more. Commentators such as Henry T. Azzam of Jordinvest, probably the Middle East's No1 economist, reckon $1.10 to the euro is likely by the year end.

Thus holding US dollars might be a happy strategy to adopt. But nothing is full-proof in this life and no lesser mortal than Warren Buffett has diversified into other currencies as a protection against further dollar weakness. That might be a wise hedge for those with considerable sums to protect.

On the other hand, residents of the GCC should consider UAE stocks - the last undervalued GCC stock market - and short-term trading in property, if they want to be more active in their portfolio management. But this is not for the passive investor.