Thus far the effects of the bailout on the equity markets have been as ineffective as throwing wet wood into a fire. I have voiced my opinion about the folly of the bill in a number or articles leading up to the approval vote. Congress members had the opportunity of their lifetime to get unfair amounts of “pork” slipped into the bill while investors (and tax payers) get stuck with the bill.

What is “pork”? It’s a secret Congress currency and white color leverage to blackmail. Congress members demanded certain bills to be included in return for their approval vote.  This explains some of the following baggage, estimated to make up about $150 billion of the $700 billion package.

Income averaging for amounts received in connection with the Exxon Valdez litigation; Tax incentive program to keep TV productions in the U.S.; Tariff relief for wool producers; Transportation fringe benefit to bicycle commuters; Exemption from tax for wooden arrows; Increase in limit for Puerto Rico rum tax (I am not kidding), etc.

The stock market has received this attempt to blindside the average Joe investor with furious selling. The Dow (AMEX: DIA) lost 4.2% points immediately following the approval and another 4.5% or so on Monday. The S&P 500 (AMEX: SPY) has fared worse due to its higher exposure to financials.

You can run, but you can’t hide!

A 450 point loss to the Dow is a rather anonymous and impersonal way to describe the carnage. How about Jana who can’t retire this year because his 401k got slaughtered? Or Doug, who has to consider coming out of retirement because his IRAs life-span just got shaved by several years.

In a market like this, no ordinary Starbucks will do, you’ll need to step up for a six pack of Red Bull. Here are some Red Bull bear market strategies to protect your wealth (most effective listed first):

1) Short ETFs

Keep in mind that while short ETFs are the most effective way to protect your portfolio, they also come with the biggest shot of risk. Like shorting a stock, you are exposed to losses if the market goes up. You can short a broad market like the S&P 500 or just one sector, like financials.

Over a year ago, we bought the UltraShort Financial ProShares (AMEX: SKF) for our Ready-To-Go Portfolios model portfolio. Two weeks before the bailout approval we added the UltraShort S&P 500 ProShares (AMEX: SDS). In essence we zeroed in on a week sector and doubled up with broad short exposure. Since consumer spending is the first to go in a recessionary environment, we also added the UltraShort Consumer Service ProShares (AMEX: SCC).

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There are plenty of short and leveraged short ETFs to choose from. Rydex and ProShares offer them on broad market and sector platforms and on S&P, Russell, Dow and Nasdaq chassis.
2) Safety First

Bond ETFs enjoy a reputation of safety. However, we have to draw a line in the sand between government bond and corporate bond ETFs. In recent weeks, corporate bond ETFs provided as much shelter as a broken umbrella in a rainstorm. The iShares iBoxx $ Investment Grade Bond ETF (NYSEarca: LQD) has displayed more volatility than broad stock market ETFs like the Vanguard Total Market ETF (NYSEarca: VTI).

Bond ETFs that act like equity ETFs isn't my idea of safe haven. Part of the problem with LQD is the fact that it's not as broadly diversified as other bond ETFs like Vanguard's Total Bond Market ETF (NYSEArca: BND)

Generally speaking government bonds offer more consistent safety. You can choose between long term Treasuries like the iShares Lehman 20+ Year Treasury (NYSEarca: TLT) or short term Treasuries such as the iShares Lehman Short Treasury (NYSEarca: SHV). Keep in mind that yields rise as debt prices fall. If you own the long duration you are stuck with the “falling prices” part of the equation. ETFguide’s ETF Profit Strategy Newsletter further explains which to stay away from.

3) Tangible Assets

Gold seems to be doing well at times of economic unrest. The SPDRs Gold Trust (NYSEarca: GLD) and iShares COMEX Gold Trust (AMEX: IAU) have seen $4 billion in asset inflows but only a moderate increase in price. Has gold lost its mojo?

4) Sector Rotation

Some sectors boom while others bust. Consumer discretionary spending is viewed to be most at risk to economic weakness. The Consumer Discretionary Select Sector SPDRs (AMEX: XLY) are down 20% year to date with no recovery in sight.

Health care and Utilities on the other hand have a reputation of bucking an overall down trend. The Utilities Select Sector SPDRs (AMEX: XLU) however have done just as bad as the S&P500. The Health Care Select Sector SPCRs (AMEX: XLV) are down 15%, which is better than the broader market.

Consumer staples, represented by the Consumer Staples Select Sector SPDRs (AMEX: XLP) has been the best performing sector of the year. Wouldn’t it make sense to shore up a thus far healthy sector rather than throwing $700 billion (minus $150 billion) of good cash after “bad” financials? The Financial Select Sector SPDRs (AMEX: XLF) have already lost half their value in the past 12 months.

5) Diversification

Until commodities started falling like a house of cards, diversification with commodities worked well. Oil (AMEX: USO) is down 40% from its high. Agriculture commodities represented by the PowerShares DB Agriculture ETF (AMEX: DBA) have fallen 34% from their highs. Real estate has not been a safe haven.

This bear market is special. It acts unlike any other recent bear market. It renders decade old pieces of Wall Street wisdom obsolete and paints red all over the board. In fact, three of the above five strategies are unlikely to staff off this veracious bear.

The two potent investment strategies have been discussed in ETFguide’s ETF Profit Strategy Newsletter for weeks. With investing knowledge pays the best dividends. Don’t allow your portfolio to dwindle into the crevices of oblivion.

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