subject: Very Real Risks of Stocks and Why Investors Are Turning to Managed Futures [print this page] Very Real Risks of Stocks and Why Investors Are Turning to Managed Futures
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
Falling housing prices of existing homes rob demand for new homes. Stock prices aren't exactly thrilled about the idea of fewer means of economic recovery.
Wouldn't you think that this will be a drag and negative for the stock market?
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.
At the start of the spike in oil 3 weeks ago, it marked just the seventh time oil prices have jumped 10% within two days. History shows that what happens next isn't pretty: The typical result for the six months after an oil-price rise like we just had is an average decline of around 10%.
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?
What if the Federal Reserve is right about QE2 in June?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:
The S&P 500 dropped 1,217 to 1,064, the VIX index jumped from 16.6 to 24.5, CRB futures dropped from 279 to 267, interest rates dropped sharply.
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.
Prudent Advice
Considering 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! In the near term, it's not that the market can't go higher. It's the risk one must assume after a 100% run up in stocks and the dark storm clouds on the horizon of higher oil prices, lingering debt problems, high unemployment and the ending of QE2 pose for the stock market.
We believe this is the time to act now and diversify one's stock portfolio with commodities and managed futures while the market is still near its highs, not react to substantial losses before one diversifies! If ever there was a time for caution in the stock market and reason to diversify one's portfolio in non-correlated assets to stocks, like commodities, we believe it is NOW.
One of the Biggest Secular Commodity Bull Markets in History
Just over 19 years is how long the average bull market has lasted historically. We are ten or so years into the current bull market....only around half way through by historical standards!
