Good Morning Everybody,
This bull market is moving forward without even a 10% correction and this is scary! In order to have a healthy long term bull market, we need a 10%+ correction. After Greenspan made the comment on ‘irrational exuberance’, the market moved higher for 3 more years. Shanghai Market has moved up 100% within the past 10 months and over 50% over the past 6 months while the fundamentals do not back up such a move. Shanghai is definitely in bubble territory. I have purchased put options on ASHR (Deutsche X-trackers Harvest CSI 300 China A-Shares ETF) which acts as an ETF for the ‘Chinese market’.
The talk on Wall Street is that there is a liquidity problem in the international bond market and at times, even during one given day, there are rapid movements in yields. Sudden rise in interest rates could pose a big problem for all equity markets. Most people should maintain 50% (or more) of the portfolio in cash to make use of such an opportunity; and more so not to put all one’s capital at risk. Periodically I purchase put options on the overall market. Premiums are too pricey on the DIA (Dow Jones) but premiums on QQQ (Nasdq100) and the IWM (Russell200) are quite reasonable.
According to the ‘herd mentality’, the dollar is expected to rise over the Euro through 2015 and many have made investments making that assumption. I take the contrarian view and I started shorting the Dollar/Euro through various ETFs. Even if I am not going to list this in the body of this newsletter, those who want to make money with the rise in the Euro, I suggest the ETF, FXE (CurrencyShares Euro Trust). For my personal account, I purchased call options on FXE. To make matters worse, call options on the volatility index (VIX) have been rising recently. Longer we go forward without a 10%+ correction, more of a risk we take with our investments.
Till next time.