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Investment Plan For The 2015 Financial Armageddon

Summary From Europe to China, the world’s economies are in turmoil. Don’t buy gold, silver, or U.S. equities, or long-term U.S. bonds. Consider short-term trades with Greece/China. And remember, cash is king. The world’s economies are a mess. Below I outline a manual to guide investors through the impending 2015 financial armageddon by pointing to several problems and providing an investment plan to help survive a crash. The Problems Chinese stock markets have nosedived 30% to 40% in the past few weeks. China’s market has yet to experience such a crash and government is in full panic mode trying to slow the decline. Official GDP growth still states at 7% but real estimates are likely to be only 4% growth. Still good, but not double digits like some years prior. China’s real estate bubble may be a major contributor to this bloodbath. The Greece debacle is still unfolding. Simply put, Europe is in a lot of mess. The Euro has declined dramatically and it will be some time for it to recover. Some European nations have taken the drastic step of reducing interest rates to negative levels (meaning banks get charged by the central bank if they don’t lend). Even if a Euro-Greek deal is reached, this will only delay a final solution as Greece’s people are not determined to change their ways. Pessimists believe that a Grexit could be followed by a dismantling of the European Union as the rest of the PIGS decide also to not pay their debt. One can only hope that Germany’s economic sway will keep the continent from falling apart. U.S. stock and bond markets are still at post-recession highs. There has not been a correction in the stock market in over 7 years; the S&P (NYSEARCA: SPY ) is up 170% since the 2008 recession ended. Irrational exuberance appears to be the only supporter of the economy. I’m not sure what will make market pop, but in my view, it is not worth the risk of holding U.S. equities. As the saying goes: What goes up must come down. Geopolitical nightmares continues. With ISIS dismantling the Middle East, Russia still making advances on Ukraine, and China slowly encroaching in the Pacific, it is clear that the U.S. has lost control as being the world’s policeman. The end of Pax Americana has come. These overhanging geopolitical issues will likely continue to plague the markets with detrimental volatility. The prospective U.S. interest rate increase terrifies investors. Yellen appears to be capriciously dying to increase the interest rates. Her veiled remarks point more and more to an imminent rate increase. Economists are betting she will do so in September . This will be a poor move, as the already shaky U.S. economy will be hurt as borrowing rates increase. Yellen’s decision might trigger a recession if her decision is too drastic. One can only hope that she further delays her decision. The Investment Plan Don’t buy bonds unless you hold intend to hold them until maturity. With interest rates most likely rising, your newly purchased bond’s price will decrease. If you are compelled to buy bonds, buy short-term bonds that will be less effected by rises in interest rate. Avoid long-term holdings in U.S. equities. Market has been too hot for too long. Would wait for a market correction for buying opportunities. Opportunities shorting equities, particularly the overheated tech sector, may arise when the market does finally selloff for the risk-taking. Others may want to consider hedging the S&P 500 with the ProShares UltraShort S&P500 (NYSEARCA: SDS ). Don’t be fooled into buying gold or silver. In previous times of turmoil these precious metals have historically been seen as safe-haven investments, however both commodities continue to downtrend. The SPDR Gold Trust (NYSEARCA: GLD ), the largest gold ETF, has declined more than 37% since its peak in 2011 bubble. In addition, iShares Silver Trust (NYSEARCA: SLV ), the largest silver ETF, is down an astonishing 67% since its 2011 peak. Both metals are to be avoided. GLD data by YCharts Those with an appetite for risk should consider small, short-term bets on both Chinese and Greek stocks. Personally holding National Bank of Greece (NYSE: NBG ) which has been having a wild wide this week. Worth the risk if trade is well timed. The Global X FTSE Greece 20 ETF (NYSEARCA: GREK ) may a “safer” bet. Buyer beware as investing in Greece is certainly not for the faint of heart. If trading, consider limit orders and stops to minimize losses. GREK data by YCharts China has had a rough couple of weeks, but in the past two days has begun to recover (though some are reporting this as a dead-cat bounce forced by the Red Army). The 30% selloff is steep for a market correction. For instance, the S&P historically typically experiences corrections of only10-20%. Should this be more than a correction, may go down more, but don’t think the paper dragon is burning yet. Recommend iShares MSCI China Index Fund (NYSEARCA: MCHI ) or iShares FTSE/Xinhua China 25 Index (NYSEARCA: FXI ), the two largest China-focused ETFs. MCHI data by YCharts Cash is king. In periods of immense market uncertainty, holding cash may be the best option. Not only has the dollar been appreciating, but its liquidity will be appreciated when markets takes a turn for the worse. When blood is in the streets, opportunities will be plentiful. Best of luck with the 2015 financial armageddon and try not to follow the herd to the slaughterhouse. Disclosure: I am/we are long NBG. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Share this article with a colleague

4 Worst Performing U.S. Equity ETFs So Far In 2015

The U.S. stock market is caught in a bull-bear tug of war this year. On the one hand, the domestic economy has been on a moderate growth path as reflected in increased consumer confidence, higher spending power, renewed optimism in housing recovery and an improving job market. Additionally, a wave of mergers and acquisitions are brightening up the stock world. On the other hand, Fed uncertainty, an aging bull market, lofty stock valuations, strong dollar, lower oil prices, and global growth concerns including Greece crisis and China slowdown are awakening the bear. As a result, both major indices – the S&P 500 and Dow Jones – are in the red territory from a year-to-date look, declining 0.4% and 1.5%, respectively. In fact, a number of products have been crushed by this tug of war, piling up huge losses for many ETFs. Below, we have highlighted four ETFs that have been hit badly in the volatile environment and might continue their rough trading in the months ahead if the same trends persist. C-Tracks ETN on CVOL (NYSEARCA: CVOL ) – Down 41.3% Volatility products have been the biggest laggard this year despite the bouts of volatility seen in the market. This is because these products tend to outperform when markets are falling or fear levels over the future are high, but neither of this has happened lately. While global headwinds tried to dominate the market, upbeat economic data and the Fed continued to fuel a rally at regular intervals. Given this, CVOL – linked to the Citi Volatility Index Total Return – was the hardest hit, having lost over 41% in value so far in the year. The note provides investors direct exposure to the implied volatility of large-cap U.S. stocks. The benchmark combines a daily rolling long exposure to the third and fourth month futures contracts on the CBOE Volatility Index with short exposure to the S&P 500 Total Return Index. The ETN is unpopular and illiquid in the volatility space with AUM of $4.5 million and average daily volume of less than 102,000 shares. It charges a slightly higher 1.15% in annual fees from investors. Market Vectors Coal ETF (NYSEARCA: KOL ) – Down 29.9% Coal has been out of investors’ favor over the past few years on the thriving alternative energy space and weak global industry fundamentals. The depletion of fossil fuel reserves, global warming and high fuel emission issues, new and advanced technologies as well as more efficient applications is making clean power more feasible, reducing the demand for the black diamond. These are making it difficult for the coal miners to sustain their profitability and margins. As a result, the ETF targeting the global coal industry has seen a wild ride and was off nearly 30% so far this year. It tracks the Market Vectors Global Coal Index. Holding 32 securities in the basket, the fund is concentrated on the top 10 holdings at 60.8% of total assets. It definitely has a U.S. focus as roughly 35% of the fund goes to the American stocks. Beyond that, the Asia and Asia-Pacific region combined to make up for 58% share. The fund has amassed $70 million in its asset base and trades in average daily volume of 77,000 shares. Expense ratio came in at 0.59%. KOL has a Zacks ETF Rank of 5 or ‘Strong Sell’ rating, suggesting their continued underperformance in the coming months. SPDR S&P Metals and Mining ETF (NYSEARCA: XME ) – Down 26.6% The other major losers in the equity world year-to-date are the metal & mining stocks and ETFs thanks to plunging metal prices and weak global trends. Acting as leveraged plays on underlying metal prices, metal miners tend to experience huge losses than their bullion cousins in the slumping metal market. In particular, a strong U.S. currency is making dollar-denominated assets more expensive for foreign investors, thereby dulling the appeal for these commodities. The ETF offers broad exposure to the U.S. metal and mining industry by tracking the S&P Metals & Mining Select Industry Index. Holding 34 stocks in its basket, it uses an equal weight methodology and does not put more than 4.53% of assets in a single security. In terms of industrial exposure, steel makes up for large chunk at 42.7%, while diversified metals and mining, aluminum, and coal & consumable fuels round out the next three spots with double-digit allocation each. The product has $263.3 million in AUM and trades in solid trading volumes of nearly 1.9 million shares per day on average. It charges 35 bps in fees and expenses and has lost about 26.6% so far in the year. First Trust ISE-Revere Natural Gas Index ETF (NYSEARCA: FCG ) – Down 22.7% Natural gas has been following the similar path that of the crude oil. After showing some stabilization at the start of the second quarter, the commodity again lost its charm in recent weeks due to a combination of factors. The shale oil boom in the U.S., increased production, supply glut and reduced demand are pushing natural gas prices and the related ETFs lower. FCG, which offers exposure to the U.S. stocks that derive a substantial portion of their revenues from the exploration and production of natural gas, is down nearly 23% in the year-to-date time frame. It follows the ISE-REVERE Natural Gas Index and holds 29 stocks in its basket, which are well spread out across components with none holding more than 4.89% share. The fund has amassed $197.3 million in its asset base while charging 60 bps in annual fees. Volume is good with more than 843,000 shares exchanged per day on average. The ETF has a Zacks ETF Rank of 4 or ‘Sell’ rating with a High risk outlook. Link to the original article on Zacks.com

China ETFs – How Cheap Is Cheap?

Summary What do we know about China and its securities? Only that in the past weeks those have given up in price virtually all they achieved in the 2015 second quarter. So we’re back to where major Chinese stock indexes were in mid-March. Only ahead of a year ago by +20%. Tsk, tsk. Somewhat better than SPY. Since we don’t know much, we ask market-maker folks [MMs] who earn a very enviable living making bets about what can happen to those stocks. What do they think? Well, they don’t want us interfering as they help big-money fund clients move their portfolios’ million-dollar trade positions around, by putting the MM firm’s capital at risk. But as market-makers hedge those risks, they can’t help but tell us by their actions how big they think the risk prospects are – in both directions, down and up. The Risk~Reward Tradeoff Lives in Asia Too Some 15 ETFs focused on China find enough active trading among major big-money investment management organizations to create a continuing interest that can be tracked. Here is how their typical trading compares with that of our market-proxy tracker, the SPDR S&P 500 Trust ETF (NYSEARCA: SPY ): Figure 1 (click to enlarge) Figure 2 provides a comparison of how U.S.-based market-makers’ hedging forecasts upside prospects for these ETFs as of the Thursday 7/9/15 close, with the worst-case price drawdowns they have faced following forecasts similar to todays’. Figure 2 (used with permission) In this mapping upside price change prospects are scaled on the green horizontal and actual prior maximum price drawdowns following similar forecasts are on the red vertical scale. The dotted diagonal shows where the two conditions are equal. As a markets comparison SPY is at location [13]. Most China ETFs are either higher downside price risk or lower return, or both. The standout value of the moment appears to be the iShares China Large-Cap ETF (NYSEARCA: FXI ) at [7]. Further details on this and the other pictured ETFs are in the table of Figure 3. Figure 3 (click to enlarge) Of quick comparative interest should be the blue row summaries of Figure 3, comparing the present average MM perceptions of China ETFs with current-day data of U.S. and world equities. The 16 Chinese ETFs Offer larger upside forecasts (column 5) with nearly the same -6% average risk exposures (7). But their net gains achieved (9) from similar prior forecasts at +5% have been only half the size (+10.3%) of the 20 best of the 2584 population of measurable equities. Part of the difference comes from better recovery from price drawdowns back to profitable prices (8) of 86 out of each 100 for the 20, while the Chinese 16 were able to recover only 73 of each 100. Conclusion The best of the Chinese ETFs are competitive on a risk~reward tradeoff basis with the best of the larger population of equities, and absolutely squash the prospects of SPY in virtually every column comparison save for price drawdown risk exposure. In the non-leveraged Chinese ETFs, many are becoming attractive. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Share this article with a colleague