Is your portfolio ready for a painful drop?

Wednesday, 23 August 2017
Melbourne, Australia
By Bernd Struben

  • Three months for 0.01%
  • Three months for 4.81%
  • Going up…then down…then up again

Another earnings season draws to an end. And the ASX 200 shows little sign of breaking out of its months’ long trading range.

The stocks surprising on the upside have been largely matched by others delivering less than expected results.

Fortescue Metals Group Ltd [ASX:FMG] was one of the lifters this week. FMG gained 6% on Monday after reporting a full-year profit of US$2.1 billion. That’s more than double last year’s profit, largely driven by higher iron ore prices.

FMG is now up 11.8% over the last three months, and up 20.1% since this time last year.

Telstra Corporation Ltd [ASX:TLS] weighed in on the other side of the scale. Investors took flight after Telstra announced it was cutting dividends by 30%. The stock fell 11.9% following the announcement.

Telstra is now down 13.84% in three months, and down 29.69% since this time last year.

More after the markets…


Overnight, the Dow Jones Industrial Average gained 196.14 points, or 0.90%.

The S&P 500 gained 24.14 points, or 0.99%.

In Europe, the Euro Stoxx 50 index closed up 32.06 points, or 0.94%. Meanwhile, the FTSE 100 gained 0.86%, and Germany’s DAX index rose 1.35%.

In Asian markets, Japan’s Nikkei 225 index is up 46.38 points, or 0.24%. China’s CSI 300 is up 0.15%.

In Australia, the S&P/ASX 200 is down 16.73 points, or 0.29%.

On the commodities markets, West Texas Intermediate crude oil is US$47.67 per barrel. Brent crude is US$51.67 per barrel.

Gold is trading for US$1,284.49 (AU$1,627.79) per troy ounce. Silver is US$16.97 (AU$21.51) per troy ounce.

One bitcoin is worth US$4,127.14.

The Aussie dollar is worth 78.91 US cents.

Three months for 0.01%

As mentioned above, the ASX 200 has been in a tight trading range for more than three months now. How tight? Take a look at the graph below.

chart image

Source: Google Finance
Click to enlarge

If you’d invested in the index three months ago, you’d be looking at a gain totalling 0.01%. In other words, you could have turned $10,000 into $10,001. Don’t spend it all in one place!

Over the last 12 months the performance is a bit better, delivering a gain of 3.72%. Yet that’s a pretty thin return for the risk of putting your money into the stock market. With term deposits paying upwards of 2.6%, the risk-reward trade-off of stashing your money in the bank looks a lot better.

Your risk-reward trade-off is something you should always consider before investing a single dollar. That’s why Greg Canavan is constantly on the lookout for the best asymmetric trade. And he just revealed three such trades in a new special report yesterday.

As Greg wrote, ‘If I’m wrong, nothing much happens. But if I’m right there is big money to be made. This is known as asymmetric risk. All good investors look for it. That is, you look for opportunities where your upside reward is multiples of your downside risk.’

You can get all the details on Greg’s three latest trades here.

Three months for 4.81%

Over in the US, as you know, the markets have been enjoying a much stronger run. The graph below shows the performance of the Dow Jones Industrial Average since 23 May.

chart image

Source: Google Finance
Click to enlarge

The Dow slipped from its 7 August highs and is still battling to get back above 22,000 points. But even with the recent dip, the index has delivered a solid 4.81% return over the past three months. And it’s up 18.04% in 12 months.

That beats any term deposit hands down. The question now is, what will the next 12 months look like?

If you ask Kris Sayce, the answer is shaky…at best. As you may know, Kris and his team over at Crash Market Investor are convinced global markets are set for a big tumble.

Record low interest rates across developed nations have seen investors pile into stocks. And their hunt for a decent yield has seen stock prices in the US rocket. As analyst Selva Freigedo writes in Crash Market Investor:

Inflation in Australia is at 1.9%; in the US, it’s at 1.7%. In other words, interest rates are lower than inflation. By keeping cash in the bank, investors are losing money…

But for those who care more about getting bigger yields, this has driven investors into assets like property and stocks.

Be clear on that. If you thought company earnings were driving the surge in the stock market, think again. It’s low interest rates and the search for yield that are driving stock prices up.’

These same record low interest rates are responsible for today’s record levels of debt. Debt that, presumably, will one day need to be repaid.

According to Kris:

The more that time passes, the more convinced I become that markets are heading for a big collapse.

I can’t say which exact straw will ultimately break the proverbial camel’s back. But I do know one thing for sure — debt will have something to do with it.

Debt seems to seep into every part of the economy.’

As Kris says, he can’t predict precisely what will bring the markets down. And though he’s confident it will be sooner rather than later, he can’t say precisely when it will happen either. Which is why he and his team at Crash Market Investor aim to help you profit before, during, and after the coming crash.

Of course, Kris is not alone in his concerns. The following headline comes from today’s Bloomberg, ‘Wall Street Banks Warn Winter Is Coming as Business Cycle Peaks’. The article continues:

HSBC Holdings Plc, Citigroup Inc. and Morgan Stanley see mounting evidence that global markets are in the last stage of their rallies before a downturn in the business cycle.

Analysts at the Wall Street behemoths cite signals including the breakdown of long-standing relationships between stocks, bonds and commodities as well as investors ignoring valuation fundamentals and data. It all means stock and credit markets are at risk of a painful drop.

Is your portfolio ready for that painful drop? If not, go here.

Going up…then down…then up again

This is the consensus analyst forecast for the price of bitcoin. Helpful, isn’t it?

From The Australian Financial Review:

The consensus is that the biggest cryptocurrency will face some resistance around $US4500 to $US4800 and correct, to then continue rallying. How high? Pantera Capital Management’s Paul Veradittakit, Tom Lee at Fundstrat Global Advisors and John Spallanzani at GFI Group see it going to $US6000 by year-end, while Ronnie Moas at Standpoint Research says it will keep rising to $US7500 in 2018…

But the road ahead might get rocky… Spallanzani, chief macro strategist at GFI Group, also predicts a sizeable fall to as low as $US3000 unless it manages to break the $US4500 level it tested last week. But then it should rebound and climb to as high as $US10,000 in 2018, he said…

More longer term, bitcoin will climb to $US25,000 by 2022, Fundstrat’s Lee said, as recent regulatory approval for options trading and settlement implies a “significant rise in institutional holdings” of bitcoin, while he estimates user accounts are likely to rise 50 per cent and usage per account to climb 30 per cent.

Moas of Standpoint Research said in an August 14 report that bitcoin could rise to $US50,000 by 2027 as he expects cryptocurrency users will grow to as high as 100 million users from 10 million today in the next couple of years.

The above analysis tells you that absolutely no one knows what the price of bitcoin will be next week…or next year. What they do know is that it’s a volatile market. And one they expect to head higher. A lot higher.

It’s also clear that interest among institutional investors is rising fast. Even analysts at Goldman Sachs have said the crypto space warrants watching as bitcoin approaches a US$100 billion market cap. And if the big fund managers start to pour money into bitcoin, US$50,000 could happen well before 2027.

I wanted to get our own tech guru Sam Volkering’s take on these forecasts. Among his other roles here at Port Phillip Publishing, Sam is also the editor of Sam Volkering’s Secret Crypto Network.

Here’s the email he sent me this morning:

‘Ignore the price. The mainstream only wants you to think about price. While that’s a fine mechanism for viewing “traditional finance” concepts, the value here is the network growth and development of the network.

‘IF bitcoin can get through the upcoming scaling issues that still persist and the SegWit2x fork without major drama, we’ll be looking at the true seed of a global currency and payments system outside of government and central bank control.

‘The vision will start to take shape.

‘And then who cares what its dollar value is. All you’ll care about is how many bitcoin you need to buy that Aston Martin you so desperately wanted…and which dealer will accept your bitcoin first.’

You won’t find many…or any…analysts telling you to ignore the price. And you’re unlikely to find any with Sam’s remarkable insight into what lies ahead in the crypto world.

Sam’s been atop this story from day one. And he walks you through it — from beginning to end — here.