Time to change tunes- stock market correction becoming possible quickly. The Swiss bail out of the Euro. Metals rise. Update Ja

See that "plunge" at the end of the right side? That is not the chart stopping. That is the 30 minute plunge of the Euro against the Swiss Franc!

 

 

Marc's Notes:

May you live in interesting times?

As if the markets didn’t need more to digest, the Swiss National Bank (SNB) unpegged its currency to the Euro last week and ripples from that spread into the entire world’s financial structure.

Much like oil plummeting which is now causing problems in other markets, the Swiss Franc versus the Euro issue has added to the uncertainty.

The problem is a familiar one and the symptom a reoccurring one. Banks, hedge funds and large investors all bet on the price of oil and Euros and now that both have plummeted in value the losses will begin to surface and because both oil and the Euro had huge and very fast moves, those losses are going to be massive.

Somewhere in there it’s possible some losses may be devastating to certain firms and if those firms are big enough to cause systemic damage, we could be looking at another “too big to fail” scenario.

We only have to recall the Long Term Capital Management (LTCM) fiasco in 1997 where a large hedge fund made a bet on the Russian Ruble and when the Ruble suddenly went under so did LTCM.

So big were their losses the Federal Reserve had to oversee a bailout cobbling together a handful of big banks to come up with billions, all in the name of saving the system.

Now that the banks are even bigger and more intertwined than ever, as we found out in the real estate crisis, too big to fail spells bailout in Fed language and could we be hatching another one as we speak?

It’s too soon to tell of course but the move in oil and the Euro have been massive, happened very fast and both were totally unexpected by the lion share of the financial firms alike. It’s those types of unforeseen black swan events that can cause massive heart attacks in the circulatory systems of the global financial systems.

I am not fully convinced however that the stock run is at its end as the ECB is about to pull out another monetary joker card in the form of another round of QE and most likely a massive round.

The Swiss decoupled from the Euro probably because the European Central Bank (ECB) is about ready to make its decision on if and how much QE they will do and the Swiss just didn’t want to keep following the Euro into dung heap it is becoming especially if the ECB dumps another round of QE on Euroland.  The Swiss probably know what’s coming and another round of Euro QE will hammer the Euro currency again and the Swiss wanted no part of it.

The bigger question is will the markets of the world react as they have done to QE in the past and begin another leg up? Or will the ECB disappoint and hold off? Or is it remotely possible even if the ECB announces another money printing binge the markets will sell off on the news?  If that happens it’s probably very bad news for stocks.

We won’t have long to wait for the answer as the ECB will make their decision by Thursday. My opinion on the whole thing is it is appearing that the markets are giving the caution light and I am becoming more and more concerned what lies ahead in the next few days and weeks. For this reason I think holding off adding any more money into stocks and bonds might be prudent advice.

Lightening up on stocks and bonds might also be warranted.

The green light of the last few years is appearing, at least to me, to be taking on a red tint and that means it may be time to stand aside until we see what’s coming.   Take heed and ignore at your peril.

 

PS: Those holding Swiss Annuities and FXF currency funds, rejoice. I told you it was coming eventually!

What to do:

A market rout is now in the possible cards to be dealt. The final implosion of stocks and bonds is probably not upon us YET because if the next market fall is big enough, our Federal Reserve will initiate another round of QE to save the markets but that might not happen until we see a multi-thousand point fall in the Dow. A set back of that magnitude however will likely devastate portfolios so it’s time to take protective action.

Set stops on all stocks 10 % lower than current levels or whatever you are comfortable with. Those who need me to assist in this please email me. (Fee for this will be low).

Those that can set stops on their own consider doing so now. You may also hedge your funds by purchasing some inverse funds. Some popular ones go by the symbol DOG, SDS or PSQ. There are more short funds you can use if you like.

Remember if you do buy these, you will LOSE MONEY if the markets go UP. Set up a stop loss of 10%  on these to protect against big losses.

Those that only have the recommended small percentages of your assets in stocks and bonds (See my Dream Portfolio for allocation amounts) may decide to ride it out but prepare for losses if the markets fall. Keep in mind I have not been a fan of bonds for some time now so those holding bonds against my advice should take heed! I do not think US Short term treasuries are at risk and may even go UP should the markets sell off as investors seek the safety of our government debt in times of market duress, a practice that is all too common nowadays.

That’s all for now but I am concerned about the recent action in oil, the Euro and what is happening in Europe. The environment has changed radically with the SNB bailing out of the Euro. This is a vote of no confidence in the Euro and perhaps paper currencies everywhere eventually.

 

 

 

Gold and Silver:
These took off on the news from the SNB and they had been in a steady and stealthy rise leading up to the events of last week. For these reasons I added a new position in GDXJ and sold naked puts on SLV. Those wishing to add gold and silver for insurance can use the many gold and silver equities at this time.

Of course gold and silver could fall again if things settle down and no one can say for certain which way markets will go but the problems in the Euro and the SNB move has caused an interest in these metals. If the Euro problem intensifies gold and silver could turn out to be sought after as a place of refuge.

Watching the market so you don’t have to,

Marc

 

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