Wall Street Greek: ISIS Terrorism Risk this Weekend

As we enter the seminal American holiday of Thanksgiving, with the busiest travel day of the year Wednesday; major football games all weekend and the Macy’s (NYSE: M) Thanksgiving Day Parade receiving national attention Thursday; and then Black Friday filling U.S. malls, the media and the market are almost ignorant of terrorism risk. Yet, this is perhaps the most vulnerable time of the year for America. So, I suggest investors take risk off temporarily through the holiday weekend or hedge against the heightened temporary risk to stocks.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Security	YTD	TTM
SPDR S&P 500 (NYSE: SPY)	+12.3%	+14.7%
SPDR Dow Jones (NYSE: DIA)	+7.6%	+10.9%
PowerShares QQQ (Nasdaq: QQQ)	+19.4%	+24.1%
iShares Russell 2000 (NYSE: IWM)	+2.2%	+4.5%
Vanguard Total Market (NYSE: VTI)	+11.4%	+14.0%

It has been a decent year, with the SPDR S&P 500 (NYSE: SPY) up 12.3% and the Vanguard Total Market ETF (NYSE: VTI) up 11.4% showing broad market rise. It probably will end up being an even better year, with the Santa Claus rally looking like its readying to roar. But, there is a risk of disruption to this story this weekend that should not be ignored. There is no reason to bear that risk.

Extensive threats have been made by the Islamic State and its supporters both home and abroad, and I think we agree this is a different sort of evil than even al Qaeda presented to us. Anything is possible and probable as this group of killers somehow finds sympathy among outsiders and psychopaths here at home. Where al Qaeda sought the catastrophic attack target, ISIS representatives have told their supporters to strike anyway, anywhere, anytime and anyhow. It’s a different sort of threat, more easily accomplished by lone wolf types and potentially just as impactful in terrorizing Americans.

The events I mentioned in my opening are high profile and will gather significant attention across the nation and affect almost every American either today or in their actions tomorrow should they be disrupted. Obviously, this group of terrorists is better informed about how Americans live and what they do, and capable of harming our confidence and our way of life. With today being the busiest travel day of the year, terrorists could strike planes, trains, buses and cause panic. With 50 million Americans watching the Macy’s (NYSE: M) parade tomorrow, any sort of attack would garner that many eyeballs and more as CNN and all American media outlets rushed to the story. And any sort of attack on a mall or two or three could affect the American economy in a dramatic fashion, and even put some ailing retailers like Sears (Nasdaq: SHLD), which employs tens of thousands of Americans, out of business. Increasingly, terrorists are gaining an understanding of these things, and so the likelihood of their striking at symbols decreases while the likelihood of their striking panic increases.

For this reason, just for this weekend, I suggest investors take risk off. I would sell the SPDR S&P 500 and other market instruments and individual securities. If for tax reasons this does not make so much sense, which will be the case for most investors, you can hedge your market risk by buying new and temporary stakes in various other securities. The table below offers some suggestions, but I would not hold them past Monday’s open, unless an event occurs, in which case I would only hold them for a day or two longer before looking to buy value in stocks driven down by any event.

Hedge Security	11-26-14 10:17 AM	YTD	TTM
iPath S&P VIX ST Futures (NYSE: VXX)	-0.7%	-36.7%	-39.9%
ProShares Short S&P 500 (NYSE: SH)	+0.1%	-13.7%	-16.1%
SPDR Gold Trust (NYSE: GLD)	-0.1%	-0.8%	-3.8%
ProShares Ultra Short S&P 500 (NYSE: SDS)	+0.1%	-25.6%	-29.8%
ProShares Ultra VIX ST Futures (NYSE: UVXY)	-1.5%	-70.7%	-73.9%
Direxion Daily Gold Miners Bull 3X (NYSE: NUGT)	-2.1%	-40.5%	-45.9%

The last three securities in this table here are levered instruments and will lose value over the holding period in the event that nothing happens, so be advised. You will note in the year-to-date and trailing twelve month performances that these levered instruments are only good as hedging tools for short-term holding periods, as they destroy value over the long-term. All of the instruments should appreciate in value if an attack occurs on America, though gold and the GLD may initially sell off before rising if an indiscriminate rush to cash occurs. These should offer some protection to portfolios without the cost of taking tax gains here at the end of the year before buying back stocks to enjoy the rally I anticipate into the end of the year.

You earned your performance this year, so why leave it at risk over this vulnerable weekend? Those managers hedging risk here might see a minor cost to performance if nothing happens, but will definitely see a beneficial divergence versus benchmarks and peers if something does occur. Stocks and the market are at risk this weekend, but no matter whether anything happens or not, America will persevere and stocks would rise again. God bless America and happy, healthy and safe Thanksgiving to you all. I cover the market regularly, so readers may find value in following my column or my blog.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.