SmartStops comment: We couldn’t agree more! It is exactly why we brought this service to the marketplace.
Look at the money protected by SmartStops recently on AAPL, CMG, NFLX etc.
By Christopher Georgopoulos
What if, hypothetically, fear of a Greek default cannot be contained? What will be the aftermath to the markets? To gold?
In the prequel to this article (European Default Inevitable — Sell Your Gold?), I discussed the fact that safe-haven-seeking investors could be in for a surprise when they run to buy gold after a Greek default and find huge sellers in the form of European sovereign nations. That article focused on events that would occur if a Greek default could be contained and the contagion that’s brought so much fear to the global system could be defeated. But what if, hypothetically, that fear cannot be contained? How will it happen, and what will be the aftermath to the markets? To gold?
The first signs of a detrimental contagion will be surprise losses, initially centered within the European banks and financial institutions. Articles such as, “European Stress Tests Underestimated Greek Exposure” will catch front-page attention. Quickly after, multiple small banks will become insolvent and the names of those banks — which many Americans have never heard of — will become as well-known as Citibank (C). Those defaults will spread to the larger European institutions that many of us know, and emergency midnight conferences will be highlighted on CNBC wherein the global financial community will be assured that all is sound. Sooner than later, a major default of one of these institutions will be revealed, and the bomb will be detonated.
This is when a 2008-type Lehman event reemerges, but this time on steroids. The fear driven from individual financial institutions will quickly morph into a fear for the nations of Europe. This fear will be derived from the recent questions concerning the lack of growth to combat their immense debt-to-revenues ratios. Anyone holding the bonds of these debt-ridden countries (i.e. Ireland, Portugal, Spain, and Italy) will panic and sell, driving their yields even higher and their credit-worthiness even lower. Those countries will find that trying to fund their needs through bond markets has become even harder and more expensive, and their risk of default will skyrocket. Deep recessions will set in as they will impose even deeper austerity plans, and unemployment — already high — will grow. Because these country’s economies are co-dependent upon each other as trading partners and consumers, even the more financially stable countries will be adversely affected. The viability of the entire Union will be questioned, their currency devalued, and talk of secession will be popular. Even worse, the spread of these losses will not be restricted by their coastal boundaries. Many American and global banks still have exposure to their European counterparts as well as money market and mutual funds. New losses, which could include massive losses on European credit default swaps, must be accounted for, which could cause a new round of credit freezes. Just like a repeat of the 2008 financial crisis, the foundation of the rapidly spreading fear will be a lack of confidence. Although this time around the solution won’t be as easy: Who will have the money to back-stop the back-stoppers?
If this were the scenario, the panic that the markets around the world would experience would be historic. The first wave of heavy selling (besides the aforementioned European bonds and stocks) would be centered in your most risky investments — the high-yielding and high-return emerging markets. Equities of the most stable markets would quickly follow. Money would flow from there to the “safest” of investments, such as US treasuries, US currency, and gold. As mentioned in my previous article, the price of gold would initially fall as Germany and the ECB try to contain the Greek default, but if the world’s confidence erodes and the defaults spread, the gold markets would once again be one of the few safe alternatives and could offer substantial upside.
The coming volatility of the markets could be unprecedented and swift. My firm has highlighted that the risks of serious market deprecation are likely with its SmartStops Risk Barometer Indicator.
You need to monitor the SPDR gold Trust (GLD), SPDR S&P 500 (SPY), Rydex Currency Shares Euro Trust (FXE) and the Vanguard MSCI Europe ETF (VGK).
SmartStops comment: Its why this service was brought to fruition. Follow SmartStops and you can be protected before you lose it all.
Unprecedented Monthly Volume Sell-Off Suggests Now’s the Time to Take Shelter – published at Minyanville by Kevin A. Tuttle
Do not concern yourself if the market goes up today, tomorrow, or a month from now. The risk of entering is not worth the reward.
Over the weekend I had the pleasure of speaking with a very prominent European money manager – overseeing hundreds of billions – about the “across-the-pond” financial crisis unwind and looming hazard of a potential domino-effect coming to fruition. Without rehashing the entire conversation, the consensus is not “if,” it’s “when” will the developing pressure finally blow. He actually went so far as to say it could truly begin unraveling within the next few weeks considering the catalysts currently in play.
The intent of providing the conversation synopsis is not for sake of fear, but understanding the potential ramifications. About three years ago, in one of my firm’s quarterly reports, we opined on a unique situation in regard to the GDP measurements of Global Nations. It stated the unprecedented growth statistics from the 56 nations tracked. “History is currently being made in the sense that all the globally tracked economic growth nations (56), every one… 100%…, are showing expansion.” This lead to my next comment… “If the economic cycle pendulum swings in both directions what would happen if the inverse occurred?” Are 2011/2012 the years we are about to find out? Maybe that’s somewhat extreme, but yet… is it possible?
We at my firm do not pretend to be intelligent enough to figure out all the nuances, catalysts, causes and reasons why the markets could fall apart; we’ll leave it to the team of economists and officials to attempt to sort that out. What we do instead is try to determine when the storm is coming and how to take shelter, which brings me to my point: Now is the time. Take shelter! Do not concern yourself if the market goes up today, tomorrow or a month from now. Clarity is key! Would you sail your boat into rocky waters with a potential hurricane looming because of your love of sailing? Is the risk worth the reward? For some, maybe; but for most, probably not.
Since the “2011 Channel of Indecision” broke on August 4, the seas have picked up dramatically and have begun swallowing ships. The markets have never seen this type of monthly volume sell-off – 47% above average (unprecedented), as seen in the monthly chart above. As Kenny Rogers put it so eloquently… “Know when to hold em’ and know when to fold em’, know when to walk away, know when to run!”
By Bill Gross – Originally published at Investment News: The following is the commentary of Bill Gross, managing director and co-CIO at Pimco, for the month of September. For a complete archive of his commentaries, click here.
“Just an old-fashioned love song, comin’ down in three-part harmony.” –Three Dog Night
In many ways the global economic crisis is like a marriage gone bad. As the Three Dog Night sang years ago, global economies have functioned harmoniously for many years, but suddenly the love songs have become strident and cacophonous, the policy coordination morphing into a war of the roses as opposed to a giving of them. Instead of three-part harmony we are now experiencing, at a minimum, tri-party disharmony, teetering on the brink of “divorce,” which in economic parlance means a possible “developed economy” recession – a downturn from which reconciliation may be difficult due to a lack of policy options and cooperation. But I get ahead of myself. Let’s first ring the wedding bells, then take you through an explanation of three separate global marriages and how each of the partners have grown apart.
Oh those feisty Europeans! Always fighting like a dating couple and then finally resolving their differences by saying “I do” sometime in the 1950s with the creation of the Common Market and the European Economic Community (EEC). In doing so, France and Germany said “never again,” and even though they didn’t like each other (read “hate”) they decided to make economic lurv in the hopes that they wouldn’t destroy the continent again. It later turned into a formal union, a European Community (EC), where they invited lots of witnesses to the ceremony and created instant family members, if that’s metaphorically possible. Twenty-seven of them, including Italy, Spain and the U.K. were now relatives despite some liking pasta and others preferring horrid cuisines featuring Shepherd’s Pie or fish and chips. The marriage progressed to the point of a smaller monetary union sometime in 1999, but critically, without a common budget. Husband and Wife – Germany and Greece – decided to have a joint bank account, but with separate allowances and no oversight. Greece could issue bonds at nearly the same yield as could its Northern hard-working neighbors, but were free to spend it any way they chose. This was an economic version of an open marriage where one party gets to have all the fun and the other worked nine-to-five and came home too exhausted for whoopee. Well sometime last year, global lenders said enough is enough and soon the whole cheating European Union (EU) was at each other’s throats, hiring lawyers and threatening to break up. Calmer heads prevailed when the ECB decided to make nice and use its checkbook. Last week Angela Merkel and France’s Sarkozy sort of got engaged for at least the second time, nixing expanded funding for their Southern neighbors and placing the burden even more on the ECB. Who knows where it goes now, but let’s put it this way – Germany and France are sleeping in a king-size bed while the rest of its EU family are sleeping in separate bedrooms. As a result Euroland faces economic contraction.
This impending divorce in America is not about sex or sleeping around, but more about romancing the now stone-cold notion that anyone could be a millionaire in the good old U.S. of A. if only they worked hard enough. Our Statue of Liberty proclaimed “give us your tired, your poor…” and sent many of them West to build a little house on the prairie or strike it rich in the goldfields of Sacramento, California or Skagway, Alaska. Many of them did and a century later, the option-laden fields of Silicon Valley provided modern-day examples of rags to riches fairytales come true. But this odd couple marriage of rich (and poor hoping to be rich), now seems on rather shaky ground. Instead of boundless opportunity, the nursery rhyme describing Jack Sprat – who could eat no fat – and his wife – who could eat no lean – appears to be the starker of the two realities. There are the poor and there are the very rich, with the shrinking middle class resembling Mr. Sprat rather than his wife.
During this country’s recent economic “recovery,” real corporate profits increased by four times the amount of working wages in dollar terms, and, as the chart below shows, are 50% higher than at the turn of the century while wages remain relatively unchanged, something that has not occurred since this country’s nuptials were concluded over three centuries ago. Is it any wonder that preliminary battlefield skirmishes in Wisconsin and Ohio between labor and capital promise to spread across every state of this land? (Not Texas!) Is it any wonder that Republican orthodoxies favoring tax cuts for the rich and Democratic orthodoxies promoting entitlements for the poor threaten to hamstring any constructive efforts to reduce unemployment over the foreseeable future? We are witnessing romantic love turning into a spiteful, bitter clash between partners in name only.
The Asian Miracle
Confucius say, “Can there be a love which does not make demands on its object?” While not a marriage, there has definitely been a love affair between Western consumers and their Chinese producer “objects” for several decades now. Read More…
by Rani Chopra, SmartStops.net contributor
The market has experienced unprecedented volatility and investors are getting more risk averse than ever before with equity fund outflows exceeding $61 billion since the start of May. The CBOE Market Volatility Index, (VIX) considered to be the markets fear indicator, continued to fall yesterday and is now down 12%.
Investors did not care whether they were invested in stocks, bonds, mutual funds or ETFs. Fear and uncertainty caused outflows across the board and gold became a safe haven, with gold prices rising over 24%.
In the midst of all the market turmoil, with the downgrade of the US debt and the continual downtrend of the US dollar, investors have turned to the Swiss Franc as a safe haven. The Swiss Franc is up more than 37% against the dollar compared to a year ago and has managed to rise against all major currencies amidst the fiscal problems of the Eurozone. The currency is also up 20% against the Euro from the start of the year.
Read the rest at: http://seekingalpha.com/article/287876-swiss-franc-remains-the-safest-currency-as-long-as-europe-s-debt-problems-continue
PALO ALTO, Calif., Aug. 5, 2011 (SEND2PRESS NEWSWIRE) — SmartStops (www.SmartStops.net) announced today the launch of the SmartStops Risk Barometer Index™ or SRBI™. The SRBI is an easy to use metric that helps investors quickly gauge the relative level and direction of risk posed by a specific group of equities such as a particular market or sector.
Derived from the SmartStops individual equity short term risk signal which identifies equities as being in a normal or above normal risk state on any given day, the SRBI compares the current risk state ratio for a group of equities to the group’s 100 average. Unlike the VIX which uses volatility as a proxy for risk and rises when equities experience big moves in either a positive or negative direction, the SRBI leverages the SmartStop Above Normal Risk State which focuses only on abnormal price movements to the down side.
An SRBI greater than 1 indicates that the number of equities in the group experiencing above normal risk is higher than the average over the last 100 trading days.
An SRBI below 1 indicates that the number of equities in the group experiencing above normal risk is lower than the average over the last 100 trading days.
The SRBI can be used in conjunction with traditional market risk indicators such as the VIX to help investors gain visibility and better manage their risk exposure.
“Investors make purchase decisions based on risk/reward analysis. Unfortunately, risk does not remain constant through time,” explains Chris Conway, SmartStops’ Director of Product Management. “The SRBI can help investors quickly gauge a market or sector’s risk profile relative to its recent history, allowing for more informed and timely decisions. We expect the SRBI to be particularly helpful in strategies employing sector or market rotation.”
Financial Advisor Akber Zaidi welcomes this new risk metric. “Managing risk is fundamental to successful investing. I am always on the lookout for innovative and effective ways to quantify and track risk exposure and I look forward to adding the SmartStops Risk Barometer Index to my risk management toolbox.”
Currently SmartStops is publishing SRBI numbers for the S&P 500 and the Dow 30 as well as for ten market sectors including Basic Materials, Consumer Goods, Consumer Services, Energy, Financials, Healthcare, Industrials, Technology, Telecommunications and Utilities.
To learn more about the SRBI and to view today’s SRBI values, visit http://www.SmartStops.net/PublicPages/MarketRiskBarometer.aspx .
SmartStops.net is dedicated to helping investors of all levels be more aware of changes in their risk exposure enabling timely decisions that protect assets, improve returns and provide peace of mind. SmartStops’ portfolio monitoring and risk alert services start at just $9.95 per month. For more information visit us at http://SmartStops.net or contact us at info@SmartStops.net.
NEW YORK (MarketWatch) — A new report from TrimTabs, the investment analysts, has blown the whistle on what really went on behind the stock-market “boom” we saw in the first quarter, when the S&P 500 Index rose more than 5%.
No wonder everyone turned bullish by the end of March — just before the market started tanking again.
So who was driving up the market? What was creating this boom?
Turns out it was the companies themselves. TrimTabs says companies spent a thumping $124 billion in the first three months of the year trying to boost their share prices by buying up stock.
That works out at about $2 billion for every day the market opened.
Meanwhile, according to Trim Tabs, guess who avoided buying stock during the first quarter? Company executives. The “insiders.”
These are the guys whose stock purchases tend to strongly signal bull markets and genuine booms. They were spending investors’ money buying their stock, but weren’t spending their own.
TrimTabs says insiders’ stock purchases came to less than $2 billion for the entire quarter, a comparatively low level.
“We’ve never seen such a sharp contrast between what insiders are doing with their own money and what they’re doing with the money of the companies they manage,” TrimTabs Chief Executive Charles Biderman wrote in a note. Stock buybacks outnumbered executive stock purchases by the highest ratio TrimTabs has seen since it started tracking the numbers back in 2004.
No kidding. When it comes to insiders, follow what they do, not what they say.
When company executives are spending their own money buying stock, it’s a bullish sign. After all, who better knows their companies’ prospects? But when they are sitting on their hands or cashing out, it’s not so good.
As for companies buying up their own shares, this needn’t be a bad thing. After all, if you drive up stock prices, all shareholders benefit.
Share buybacks also are a pretty good way of returning cash to investors. They’re not as good as paying dividends, but they are a better investment than most of the other things management likes to do with the money — like investing in pet projects, or providing more executive perks or making ill-timed acquisitions.
Alas, in this case, there’s another chapter to this story.
SmartStops commentary: There are critics of his calls, but Roubini in July 2006 predicted a “catastrophic” global financial meltdown that central bankers would be unable to prevent. The collapse of Lehman Brothers Holdings Inc. in 2008 sparked turmoil that led to the worst financial crisis since the 1930s. Of course predicting the markets future is challenging to say the least, with so many factors at play. Its why investor’s methodology must evolve to have protection ready for themselves at all times. You can’t survive our markets any longer by deploying a buy and hold methodolgy.
‘Perfect Storm’ warning for stocks
A “perfect storm” of fiscal woe in the U.S., a slowdown in China, European debt restructuring and stagnation in Japan may converge on the global economy, New York University professor Nouriel Roubini said.
There’s a one-in-three chance the factors will combine to stunt growth from 2013, Roubini said in a June 11 interview in Singapore. Other possible outcomes are “anemic but OK” global growth or an “optimistic” scenario in which the expansion improves.
“There are already elements of fragility,” he said. “Everybody’s kicking the can down the road of too much public and private debt. The can is becoming heavier and heavier, and bigger on debt, and all these problems may come to a head by 2013 at the latest.”
Elevated U.S. unemployment, a surge in oil and food prices, rising interest rates in Asia and trade disruption from Japan’s record earthquake threaten to sap the world economy. Stocks worldwide have lost more than $3.3 trillion since the beginning of May, and Roubini said financial markets by the middle of next year could start worrying about a convergence of risks in 2013.
We couldn’t agree with the infamous Dr. Benoit Mandlebrot more in this 2009 interview by Financial Times. Nothing can prevent a company from a price drop or becoming instantly worthless – NOW is the time to start again with theories of markets. We can’t rely on the easy assumptions of efficient markets and need to reevaluate our approaches and develop new theory. Prices are discontinuous – there is no inertia. Benoit Mandelbrot (may he rest in peace) was an emeritus professor of mathematics at Yale University
Remember – you can’t “predict”, which is why its important to maintain constant protection. SmartStops is producing intelligent self-adjusting baseline numbers that are derived from careful analysis of the individual equity’s behavior. And they further optimized based on macro conditions. Thus providing you the capability to take a pro-active or re-active approach to managing your risk.
from an interview with the infamous Nassim Taleb of Black Swan -http://knowledge.wharton.upenn.edu/article.cfm?articleid=2755
Taleb: That’s true. But I’ve been trying to emphasize the true message of the black swan, which is that there are some environments in which rare events are simply not predictable.
Most people think that they can predict the black swan, that with quantitative sophistication they can get answers. They don’t get the idea that because we can’t predict black swans, then we need to restructure institutions and rethink strategies to be more robust in the face of uncertainty.