Uh oh - Stocks are getting riskier! It's no secret that investing in stocks is very risky. In fact, it's probably the single most risky investment that a person can make
High unemployment, tight credit and uncertainty over prices have also kept many potential buyers from making purchases.
How is this going to affect the stock market? Not in a positive way.
The unknown effects of the economic consequences of Japan's devastating earthquake: No one really knows what the destruction and radiation effects will be. Uncertainty is not good for stocks, especially when contrasted with
managed futures account.
According to the International Monetary Fund the mounting debt burden of the world's most developed nations is unsustainable and risks a future fiscal crisis. The average public debt ratio of advanced countries will exceed 100 percent of their gross domestic product this year. This is the first time this has happened since WW 2.
While the conflict in Libya may be stealing the spotlight the real tinderbox is in Saudi Arabia and Bahrain. There is unrest in both countries with Saudi Arabia sending troops to quell the uprisings in Bahrain. Oil prices have rose sharply over the past 3 weeks. Anything jeopardizing the Saudis production of oil could be extremely negative for the stock.
Economist David Rosenberg notes that 4 in 5 previous periods where oil prices double as steeply as they are currently resulted in recessions which adversely affect stock performance.
Financial recovery is less than two years in, and we haven't yet seen jobs make a decent comeback. Now we're being hit with a surge in oil prices that takes money out of consumers' pockets: money that would have been spent supporting the economy. Wouldn't you think this is something for stock investors to worry about?
We have only one instance where the Fed cut back on quantitative easing, and that was last year when the Fed let its balance sheet contract by some 12% from late April to late August.
Let's look at what happened:
Interest rates dropped, the S&P dropped, the VIX jumped from 16.6 to 24.5, CRB futures dropped from 279 to 267.vGold was one of the only commodities that bucked the trend rising to $1,235 an ounce from $1,140.
Managed futures are becoming increasing popular as a result of this.
Historical Possibilities Facing the marketThe market rose 100% in 2 years from its low. Now we have serious oil, Sovereign debt, and the ending of QE2 problems facing it. There is a good chance history may repeat itself with the market being around 10% lower 6 months from now........and a lot lower than that if oil prices climb above $120 a barrel and we have a recession! Historically, the market is now facing being lower 10% within 6 months based on similar oil price spikes or if we go into another recession, which is highly probable based on the 5 previous times we had a doubling of oil prices within two years, the market can be 40% or more lower. Is this something stock investors should be concerned about?
Sensible AdviceConsidering the market is still relatively near its highs we believe this could be a prudent and opportune time to lighten up on stocks and participate in managed futures and commodities which are uncorrelated with stocks and in one of the biggest secular bull markets of all time! Remember, it doesn't matter how much open trade profits one has. It's not a real profit unless you liquidate the position and lock it in!
The average bull market lasted an average of 19.4 years. We are smack dab in the middle of one of the best times in history to invest in managed futures and commodities.