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What the Pros Say: Investing Tips after AIG Downgrade

Insurer American International Groupstruggled for survival a day after a financial tsunami swept away investment bank Lehman Brothersand forced the sale of rival Merrill Lynchin the biggest financial industry shake-up since the Great Depression.

WALL STREET IN CRISIS - A CNBC SPECIAL REPORT
WALL STREET IN CRISIS - A CNBC SPECIAL REPORT

Moody'sand Standard & Poor's ratings agencies went ahead with downgradesafter the market closed on Monday. S&P cut its AIG rating to 'A-' from 'AA-', while Moody's downgraded AIG's senior unsecured debt rating to A2 from Aa3.

Investment experts from around the globe offer their advice on what investors can do in the wake of the latest financial turmoil.

Diversify for Survival

We are in a period of massive deleveraging, where cash is king, Joe Terranova, chief strategist at Phoenix Investment Partners said Tuesday. It's the moment of capitulation and the only way to survive is diversification, he told CNBC.

Different Schools of Thought

Alan Kral, of Trevor Stewart Burton & Jacobsen is only looking at companies that don’t need short-term loans to function. Steve Auth, of Federated Investors, says his company is relatively defensive and neutral to underweight securities, for now. Meanwhile, Eric Ross, of Canaccord Adams, is thinking very short-term, targeted securities only.

The Energy Option

Terranova also mentioned later in the day that investors should look at how ExxonMobil and Chevron are performing this afternoon, and says we’re reaching a point where “it’s time to take a look at the commodities names again.” (See accompanying video.)









“I think the story being overshadowed by AIG is we’re looking at $91/barrel oil right now,” says Nick Massey, Householder Group VP. “You certainly don’t want to be selling energy stocks here and I think you can start adding to your portfolio.”


Running Toward Risk

“If you look over the last year, there have been five previous times when the VIX [the measure of market volatility] has gone above the level of 30,” Ron Papanek, RiskMetrics Group market strategist, says. “Each of those times, we saw a very significant rise in the market.” (See accompanying video.)







House Prices Must Bottom

There needs to be a bottoming out in the decline in home prices before some measure of confidence can return to the U.S. financial markets, Stephen Davies, CEO of Javelin Wealth Management said.

AIG is Likely to Find Support

AIG is likely to find some degree of support as Stephen Davies, CEO of Javelin Wealth Management, thinks there is more of an incentive for regulators and other people to help the ailing insurance giant as it is essentially sound. (See accompanying video.)








"AIG has always been regarded as an incredibly complex vehicle," Andrew Milligan, investment director of Standard Life Investments said. "As far as AIG is concerned, it is so complex and so incredibly important to other parts of the financial institution, I'm sure it will be saved."

"At the moment, where we are in this deleveraging process, it is all about transparency. Everybody who is not transparent is going to be hurt and is going to be brought to the brink of collapse," Hans Redeker, global head of foreign exchange at BNP Paribas told CNBC.

Dow Will Break 10,827

The Dow Jones Industrial Average will likely take out the July low of 10,827 points Tuesday and could sink much further than that, Sandy Jadeja from ODL Securities told CNBC.

“If you look over the last year, there have been five previous times when the VIX [the measure of market volatility] has gone above the level of 30,” Ron Papanek, RiskMetrics Group market strategist, says. “Each of those times, we saw a very significant rise in the market.” (See accompanying video.)







House Prices Must Bottom

There needs to be a bottoming out in the decline in home prices before some measure of confidence can return to the U.S. financial markets, Stephen Davies, CEO of Javelin Wealth Management said.

Stay Put with Cash

Uncertainty over when the stock-market decline will stop means investors should just stay away and hold on to their cash, Benjamin Pace, chief investment officer from Deutsche Bank Private Wealth Management, told CNBC. (See accompanying video.)









Go East, Young Investor

Asia's banking system has been virtually unaffected by the U.S. financial crisis, in terms of its balance sheet, noted Andrew Freris, senior investment strategist for Asia at BNP Paribas Private Bank.

Or South?

Any weakness in the Australian financial sector presents a good opportunity to pick up local banks, said David Halliday, associate director at Macquarie Private Bank.

“If you look over the last year, there have been five previous times when the VIX [the measure of market volatility] has gone above the level of 30,” Ron Papanek, RiskMetrics Group market strategist, says. “Each of those times, we saw a very significant rise in the market.” (See accompanying video.)







House Prices Must Bottom

There needs to be a bottoming out in the decline in home prices before some measure of confidence can return to the U.S. financial markets, Stephen Davies, CEO of Javelin Wealth Management said.

Got Over $100,000? Best to Split It

People's bank deposits are safe despite the ongoing crisis in the sector, but investors with over $100,000 in savings should think about dividing it between two banks, Mark Zandi, chief economist at Moody's Economy.com, told CNBC. (See accompanying video.)








Buy the Actual Gold

Real, physical precious metals are probably the only assets which will protect your purchasing power in the medium term, advises Jurg Kiener, CEO of Swiss Asia Capital.


“If you look over the last year, there have been five previous times when the VIX [the measure of market volatility] has gone above the level of 30,” Ron Papanek, RiskMetrics Group market strategist, says. “Each of those times, we saw a very significant rise in the market.” (See accompanying video.)







House Prices Must Bottom

There needs to be a bottoming out in the decline in home prices before some measure of confidence can return to the U.S. financial markets, Stephen Davies, CEO of Javelin Wealth Management said.

Avoid Stocks When Confidence is Lost

In light of the current crisis in confidence, Stephen Gollop, CEO of Tyche, believes it is safer to stay away from stocks.

Gollop also believes that Washington Mutual may be the next Wall Street financial institution to suffer and he expects more American banks to fail. (See accompanying video.)




Seeking Safe Havens

Investors are looking for safety and shorter-maturity bonds like 2-year Treasury Notes and avoiding risky moves like the carry trade, where investors borrow money in currencies where the issuing country has lower rates and invest in higher yielding currencies.

The short-end of high-rated yield curves is your best bet, according to Andrew Freris, senior investment strategist for Asia at BNP Paribas.

If you have the luxury of holding cash, Bruno Verstraete, CEO of Nautilus Invest, suggested protecting it by hiding it in Treasury bills or shorting the market for as long as it lasts.