WASHINGTON, July 10, 2014 — If you’re in the market at all, there’s little to do but wring your hands this morning as your portfolio tanks, at least right at Thursday’s opening bell. As of approximately 7:45 a.m., Dow futures were off a colossal 138 points. The broader-based S&P 500 futures are off a whopping 16.5 points, and the tech-heavy NASDAQ is sitting at a negative 32.75.
After a sunny interpretation of those Fed minutes yesterday by the bulls, the bears have donned their Darth Vader masks this morning, pointing to a new potential European bank disaster. This time the problem is in Portugal, one of the original PIIGS, where a large bank there carrying the ironic name of Banco Espirito Santo (Holy Spirit Bank), looks like it’s on the edge. (Maybe their management placed bets on the Brazilian soccer team.)
The fear of a perhaps unexpected big bank failure in Portugal took that country’s PSI 20 stock index down 3%. Larger major European indexes—markets are still open there—are currently getting pummeled as well, with the DAX down 145.5, the FTSE down 56.82, and the CAC 40 off 64.16, all three down roughly 1-1.5% as well.
Following on the heels of bank trouble in Austria, the substantial sting to markets being dealt by this latest Portuguese Man O’ War may move ECB head Mario Draghi at last to actually do something substantial besides fibbing and jawboning to keep the Eurobanking system intact. He promised something “soon” back in June.
But, like Lucy, Draghi pulled the football away from Charlie Brown again leaving Charlie—and hopeful investors—flat on their collective backs. Apparently, you really can fool all of the people all of the time, but the clever Draghi’s string may have run out.
Like many of you, the Maven is pretty heavily invested right now, but mostly in bonds and preferred stocks. While everything will go down this morning, these investments should hold up better than most. For now. But if today’s dive proves to be the bearish catalyst everyone has been looking for, it will be Katie Bar the Door for nearly everything for a while.
So hold on to your hats and keep reading.
Today’s trading tips
Moving right along, it seems our little hedge bets on gold and palladium are paying off, as both are up sharply this morning. For once, the yellow metal in particular is performing in its traditional “refuge” mode as investors are apparently rushing to it once again to hide from today’s looming disaster. Gold ETFs generally in favor are GLD and IAU, although we use the Swiss bullion ETF, SGOL, since we can trade it without a commission at our brokerage.
Silver ETFs might work here as well, including SLV and SILV. For those who trade like investing is an extreme sport, the 2x leveraged silver ETF, AGQ, might work. But given its astounding volatility, it’s only for the rich or foolish. (The Maven has occasionally been one of the latter here).
Other hedges in ETF land include the slow moving S&P 500 inverse ETF, SH, which is assembled in such a way that it mirrors down-moves in that average. Again, for extreme sports fans, the 2x short S&P 500 ETF, the almost comically named SDS (for those who still remember the Port Huron Statement) might work. The Maven may put on both.
But the key here is not to chase this stuff. After that horrendous opening that appears to be likely, most markets will waterfall down at horrifying speed and, depressingly, at higher volume than we’ve been seeing, we suspect.
This opening blood bath is a bad time to exit any positions that have been making you nervous. And it’s likely a bad time to chase those short ETFs and precious metals ETFs. Typically, some indefinite time after the initial crash, some buying will come in, lifting averages sometimes considerably. That’s the best time to make a move, as the selling waves and shorting waves will begin anew once the bears and HFTs feel they’ve snagged enough bulls in their trap.
Today will likely end badly down, but you never know. The legendary (and never admitted) government CPT (Crash Prevention Team) may surreptitiously intervene. And some good news might actually show up.
Or better yet, Mario Draghi might actually DO something besides yak. Miracles do occasionally happen.
But in the end, your best bet might just be not to look, and get packed for your mid-July vacation, assuming you can afford the petrol. This stuff will blow over at some point. And if you start dumping your best performing stocks into it at too rapid a clip, you might regret doing so sooner than you think.
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