Is It Time to Get Going Into Cash?

by Bryan Perry | April 1, 2014 11:36 am

As concerns about Russia’s next move and an overvalued market mount, many of my Cash Machine and Extreme Income subscribers who are close to retiring or have already retired are fearful of another big crash.

While, certainly, there are potential major risks to keep an eye on – including North Korea agitation, Iran’s nuke program, Russian incursion into the Baltic states and a major natural disaster like a large earthquake in California – my over-arching view is that a major downside catalyst isn’t highly visible at this time.

I make that statement based on fact that the Fed still has a dual mandate to foster better hiring trends and hold down long-term interest rates, both bullish backdrops for stocks and high-yield assets.

In addition to that underlying market support, the recent strength of multinationals is a sign that money is starting to flow back into emerging markets. Talk of China pumping more stimulus into its economy was met very favorably to start off the new trading week, with India’s stock market as the standout.

We’ll get more evidence of how well the economy is doing during the upcoming earnings season, which is set to commence next week. And, more importantly, we’ll be able to take a look at the forward guidance offered by key companies.

But, while I’m feeling solid about the market’s upside prospects, I’ve been asked about possible hedging strategies that would limit losses in the event of a catastrophic black-swan event.

I’m always thinking ahead to those strategies in the event they’re needed, which I’ve talked about previously[1]. I wouldn’t mind seeing the S&P 500 take a stab at trading around 1,925 in a breakout move before the end of May, and then at that time consider leveraged exchange-traded funds that short the S&P 500 or the Russell 2000.

If you’re looking for some quick suggestions, I would offer up ProShares UltraShort Dow30 (DXD[2]), ProShares UltraShort S&P 500 (SDS[3]), ProShares UltraShort QQQ (QID[4]), and ProShares UltraShort Russell 2000 (TWM[5]) for your consideration.

But, for the moment, I think it’s too early to initiate any hedging. It was encouraging to see the month of March going out like a Nittany Lion after acting like a beaten lamb. There’s no doubt that Ukraine is still a concern and a bit of a wild card for how a negative chain of events would impact global equity markets. Any calming of that fluid situation will also fuel higher markets around the world.

  1. which I’ve talked about previously:
  2. DXD:
  3. SDS:
  4. QID:
  5. TWM:

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