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| ISIS marks Christians with the Arabic symbol for Nazarene |
In a recent article, I suggested investors should
look to leverage volatility over the next three months due to a historical trend around first Fed rate hikes. In early August
I suggested investors raise cash levels,
stop buying dips in stocks, and
take volatility instrument interests ahead of what
I foresaw would be an imminent market correction.
Today, as a precautionary measure for what I see as a high probability of terrorism and risk of severe disruption to securities,
I am again suggesting investors have cash stores at the ready. Such stores of cash will allow investors to buy stocks at discount on any event driven weakness, and in doing so, preserve and protect portfolio performance. This is not an all out sell suggestion, as the Santa Claus rally is underway just as we predicted it would be. Stocks should continue to surge higher through the first half of January barring any significant terrorism or other disruption. However, entering the next week or so without volatility hedges and cash stores in place is simply negligent and irresponsible investment behavior.
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.
I apologize for this report reaching my followers this late, as it was authored and submitted for publishing elsewhere on Thursday. Unfortunately it was not published despite my insistence due to the hot button topic that is terrorism and the normalcy bias. However, I believe many of us understand that this is a real risk to securities, and so I must ensure it reaches you.
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| 5-Day Chart of SPDR S&P 500 (NYSE: SPY) |
The charts are similar across the sectors of the market this week.
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Market Sector Securities
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Last Week Thru Wednesday
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SPDR S&P 500 (NYSE: SPY)
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+3.0%
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SPDR Dow Jones (NYSE: DIA)
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+2.8%
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PowerShares QQQ (Nasdaq: QQQ)
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+2.5%
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iShares Russell 2000 (NYSE: IWM)
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+3.0%
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Vanguard Total Stock Market (NYSE: VTI)
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+3.0% *
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*Adjusted for dividend
The Santa Claus rally is underway (
as we expected), and I am participating in it. My long stake in the energy sector shows confidence in the rally, but at the same time I have serious concern about a potential disruption to it. During this period where investors are buying the worst beaten securities and their favorites for 2016, there could be a near-term setback. Though, the worst beaten should take a lesser hit in such a scenario.
The risk of terrorism is not just a geopolitical or social concern. It poses a threat to our investments in securities markets, and so it is worthy of discussion in this forum. I will not get into the details of the various possible threats against us,
but I must note some important aspects of terrorism and the spectrum of its potential impact. We have seen in the past that certain geopolitical events can actually serve U.S. securities. For instance, when the attack occurred in Paris, demand for U.S. treasuries increased due to a flight to quality to American risk assets; gold appreciated immediately thereafter but only momentarily due to strength in the dollar. So that means if terror attacks are concentrated to overseas locations, U.S. securities face less risk relatively speaking.
However, if attacks occur in the U.S., there is a greater danger to U.S. investments given the threat to America, the economy, dollar and companies that operate here. It’s also important to note that the scale and location of attacks play a role on financial securities as well. For instance, far reaching attacks or a series of attacks, for instance to a mall or malls (everyone shops) or to Wall Street or banks (most Americans save and/or invest) is far more threatening than an isolated attack. However, isolated attacks on high profile locations like New York City or Washington D.C. carry far more terror-factor than attacks to suburban locales. The reason for that should be clear; an attack on America’s largest city puts fear in the hearts of all city dwellers. Also, major media reacts in a greater way to issues at their doorstep. Also an attack on our nation’s capitol feels like an attack on all of us. Finally, catastrophic attacks of any sort are catastrophic for our investments. The enemies of America are well aware of these things given their focus of attention.
Risk is heightened now because the potential perpetrators of terror are religious fanatics. Christmas represents
to them one of the most important of
heretical celebrations of their enemies. New Year’s Eve is likewise high profile because it is celebrated worldwide. As a result, the next week or so, given that it includes Christmas and New Year’s, is perhaps the highest risk period for investors globally. Given the predominance of our Times Square celebration, and the specific threats of ISIS to New York and Washington, it is simply negligent to not be prepared for the possibility.
That means it makes sense to take temporary stakes in volatility hedges like the iPath S&P 500 VIX Short-Term Futures ETN (NYSE: VXX) and/ or other similar instruments, similarly to what we did in early August. These can serve to protect portfolios for very short periods of time. It is important to note that these are short-term instruments to be sold on their significant appreciation or the passage of the risk period.
I would go so far as to say they are only appropriate for sophisticated investors who understand their risk and can bear it.
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Volatility Securities
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iPath S&P 500 VIX ST Futures ETN (NYSE: VXX)
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VelocityShares VIX ST ETN (NYSE: VIIX)
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ProShares VIX ST Futures (NYSE: VIXY)
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ProShares Ultra VIX ST
Futures (NYSE: UVXY)
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VelocityShares Daily 2X
VIX (NYSE: TVIX)
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iPath S&P 500 VIX Mid-Term
Futures ETN (NYSE: VXZ)
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Inverse or Short VIX
Instruments
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ProShares Short VIX ST
Futures ETN (NYSE: SVXY)
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VelocityShares Daily Inverse
VIX ST ETN (NYSE: XIV)
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VelocityShares Daily Inverse
VIX MT ETN (NYSE: ZIV)
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Otherwise,
for the rest of us, it is wise now to have cash stores at the ready to buy securities on any decline following an event. I would not sell gold interests to raise cash, as gold and its proxy securities like the SPDR Gold Trust (NYSE: GLD) should in my opinion appreciate in the event of terrorism, and perhaps even if the U.S. is not targeted. If you do have tax losses available to take and to mark against gains or income for the current tax year or even beyond that, you might do so now. Keep in mind that the best time to do that was probably a month ago, and that these securities are likely to rise now in many instances. As a result you might take a little from each holding to maintain interests while also raising cash. Or you might simply send more cash into your brokerage account so that it is ready for use to buy stocks at discount.
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Precious Metals Proxy
Securities
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SPDR Gold Trust (NYSE: GLD)
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iShares Gold Trust (NYSE: IAU)
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iShares Silver Trust (NYSE: SLV)
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Direxion Daily Gold Miners Bullish 3X (NYSE: NUGT)
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Market Vectors Gold Miners (NYSE: GDX)
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Market Vectors Junior Gold Miners (NYSE: GDXJ)
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In a worst case scenario, we can expect a correction to securities markets, Santa Claus rally period or not. So while many of us are participating in the rally and are looking forward to January, we should not be ignoring this very serious risk. Thus, I suggest taking some time now to ensure you have cash in your brokerage accounts at the ready to buy securities at discount if God forbid something bad happens. Buying securities at severe lows on disruptive macro drivers serves outperformance and covers up many mistakes for those of us seeking alpha and perhaps not finding the best of it. I cover the markets regularly and invite relative interests to follow my
Wall Street Greek blog and
my column at Seeking Alpha. Follow me on Twitter at
www.Twitter.com/WallStreetGreek and at Facebook via
www.Facebook.com/WallStreetGreek. Join my email list by
emailing me at WallStreetGreek @gmail.com.
DISCLOSURES: Kaminis is long VXX and long GDX mentioned in the article. Article may interest Northrop Grumman (NYSE: NOC), Raytheon (NYSE: RTN), Alliant Techsystems (NYSE: ATK), Lockheed Martin (NYSE: LMT), Boeing (NYSE: BA), NYSE: IWM, NYSE: TWM, NYSE: IWD, Honeywell (NYSE: HON), General Dynamics (NYSE: GD), Rockwell Collins (NYSE: COL), Goodrich (NYSE: GR), L-3 Communications (NYSE: LLL), SAIC (NYSE: SAI), FLIR Systems (Nasdaq: FLIR), EMBRAER (NYSE: ERJ), Spirit Aerosystems (NYSE: SPR), BE Aerospace (Nasdaq: BEAV), TransDigm Group (NYSE: TDG), CAE (NYSE: CAE), Hexcel (NYSE: HXL), Esterline Technologies (NYSE: ESL), Teledyne Technologies (NYSE: TDY), Curtiss-Wright (NYSE: CW), HEICO (NYSE: HEI), Triumph Group (NYSE: TGI), Orbital Sciences (NYSE: ORB), AAR Corp. (NYSE: AIR), Kaman Corp. (Nasdaq: KAMN), AeroVironment (Nasdaq: AVAV), Smith & Wesson (Nasdaq: SWHC), DigitalGlobe (NYSE: DGI), GenCorp (NYSE: GY), Hawk (AMEX: HWK), LMI Aerospace (Nasdaq: LMIA). 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.
Labels: Editors_Picks, Editors-Picks-2015-Q4, Global Affairs Geopolitics, Insightful, Market-Outlook, Market-Outlook-2015-Q4, Terrorism
