Tag: crisis

  • How to trade stocks during the recession?

    How to trade stocks during the recession?

    How to trade stocks during the recession?
    Generally, trading is unquestionably one of the most difficult things but it is maybe the best opportunity to make money.

    By Gorica Gligorijevic

    I’ve been examining for some time now how to trade stocks during recession. Don’t doubt we are in a recession now because we are. Well, this recession isn’t like we know from our previous experiences. The one we are talking about is caused by a pandemic. 

    I know that many experts will argue that the recession would come anyway. That might be true but this one came due to the coronavirus pandemic and thus, it’s somehow different but speaking about how to trade stocks, the principle could be the same. That’s my opinion.

    First of all, let’s make clear one important thing. We all know that the most important market gains occur during short periods of time. What does it mean? It means the market profits aren’t equally spread throughout time.

    How should traders trade stocks during recession? 

    Stock trading in a recession could be very different since there are several opposing schools of thought. Some experts would suggest traders should go short. That is true due to the fact that some companies’ profits could be hurt and lower share prices.

    Yet, there is another group that deems the recession is a “lagging indicator” thus their opinion is contrarian.

    The first school advises traders to be cautious in these circumstances. This means traders should take little or no trading activities. In general, they suggest traders stay away until the end of the recession.

    Is a recession time to buy? 

    Yes, I know that many people have lost a lot but, on the other hand, many profited. So, I concluded that loss and profits during the recession depend on the strategy you use and the assets you trade.

    Take the risk and go short 

    This could be a possible best way to earn a lot of money during the recession when the market downturns. Well, if a downturn never comes you’ll not make money. 

    In a recession, traders usually go short. They short their stocks, some will sell their call options or buy puts.

    These trading activities show that traders expect the price will go down. If that happens traders will increase their gains. The most important for every trader is to set a stop-loss level and take profit level. That will trigger your risk management rules if the price changes direction and goes against your position. These settings will provide you to close the position in small losses. 

    In fact, gains from short positions happen faster.

    Short your stocks if you feel you have an advantage and if you want more direct exposure. Stocks with high beta could be the worst players during recession. These companies have weak balance sheets and the lowest earnings. Such companies could easily be from the tech or biotech sector, but always they are small-caps. 

    They are dropping faster due to traders’ expectations they will no longer exist.

    What else can you do?

    You can go long volatility if you buy a volatility ETF such as VXX. It showed great results in 2018 and in 2019 with sell-offs. If you chose this strategy to trade stocks during recession, keep in mind that you shouldn’t go long volatility for a long time. That could lead you to “decay”.

    Go long volatility for a short time, for example, it could be a month or two but no longer.

    Also, go long gold because it has tendencies to perform very well during recession. Well, gold cannot give you dividends or generate earning but it is a tradable commodity. In the dire economic circumstances, this asset always becomes more valuable. With some gold ETF, you could earn a lot.

    How to make money during recession?

    You couldn’t be more wrong if you think it’s impossible. Pay attention to how long you’re shorting the market. Bear in mind, when you’re buying volatility in the market it can last just one week. On the other hand, if you’re shorting index funds such as the S&P 500, you can do that for up to two years. 

    The point is to have discipline and short for a short time. Otherwise, you’re more likely to lose your money due to your faulty timing. To be honest, the simplest way to make money during a recession is to go long cash or cash equivalents. For example, some low-risk investments could be the right choice.

    Interest rates are currently ultra-low right. You can invest in treasury notes, treasury bills, bonds, money market mutual funds, fixed annuities, preferred stocks, common stocks that pay dividends, or index funds.

    Always have cash reserves. Remember, the latest mentioned are investing opportunities. If you want your money to earn a higher return on, you do have different options. Don’t be afraid to day trade, it can generate a lot of money right now.

    What’s the best strategy to trade stocks during a recession?

    Learning to trade is unquestionably one of the most difficult things. It can be terrifying and frustrating in the beginning. I want to say to new traders that attempt to enter this field, never try to figure out everything at once. You’ll be overwhelmed by the information and that can only confuse you. Make small progress every day, trade a little each day, and learn.

    Remember, it is 100 percent sure that it is possible to make a  lot of money during recession. The thing needed for trading is here – the price fluctuation. So, it is almost the same when there are no recessions or downturns. For stock trading price fluctuation is essential. 

    You must have a strong risk management strategy, and not more than two trading strategies. Never be impatient, just wait for A+ setups. You must have a trading plan, it’s impossible to just jump in a trade.

    Trade smart!

  • Recession Fears Overflowed Americans

    Recession Fears Overflowed Americans

    Recession Fears Overflowed Americans
    42% of Americans plan to reduce spending, according to the research held by the Consumer Education team at LendEDU
    32% reported having no money in an emergency fund and 55% of respondents reported having $1,000 or less.
    37% believe their finances are too low to resist a recession 

    By Guy Avtalyon

    Recession fears overflowed not only Americans, but the whole world is also in it too. In late August, the Consumer Education team at the LendEDU conducted a nationally-representative survey of Americans to gauge their sentiment towards the situation of an economic recession. The aim of this nationally-representative survey of Americans to gauge was to better understand how the risk of a recession may change consumer spending and investing habits has been said from the Team. 

    And if you have some fears and concerns about the coming recession, you are in the right club. According to this survey, more than half of Americans are somewhat or completely worried about a recession and willing to change their habits.

    The survey revealed that fears of a recession are modifying habits and, also, that many Americans haven’t positive feelings about their current financial conditions.

    Here are some data from the survey:

    42% of respondents are planning to spend less and save more due to recession fears
    32% of respondents reported having no money in an emergency fund and 55% of respondents reported having $1,000 or less. The median amount was $712.
    37% of respondents believe their finances are too weak to withstand a recession and 22% are unsure.

    HERE IS THE FULL REPORT

    We are all afraid of recession

    Even if we are living in a safe-heaven with a booming economy the question of when, not if, a recession will come. The history isn’t helpful, it is contrary. All we know about recession is scary.
    When it occurs, many people could be in a very hard financial situation. Some of them are still trying to stand on their feet after the Great Recession in 2008. 

    That is our reality. The media are full of reports about recession and how fast we will be faced with it. Massive unemployment, doom, misery, and, of course, the stock market breakdown. That is exactly what media reports say.

    To make clear what the recession is. When the GDP is negative for two or more running quarters. The decline in personal income or corporate profits, or when the employment decreases, also the production or retail sales are falling, we can say we have a recession.

    Many factors may cause a recession. But one thing you have to keep in mind, a recession is only part of the business cycle. And it never lasts forever. The economy will never fall forever.

    Why do recession fears grow?  

    The fears come from a willingness to survive. Sounds controversy, but when you are faced with something you don’t know, or you don’t understand, or you already had a bad experience, you feel fear. But the other side of your brain commands you must survive. So, what are you doing? You are going to find a way to meet your brain’s expectations. Well, when we are afraid of recession the first thing we can do is to cut our expenses if our salaries are decreasing. That means, we have to change our habits. 

    And this LendEDU survey showed exactly that. The majority prefer to change their habits in order to survive a possible recession. 

    But when it comes to their investments some intriguing things arose. On a question from the mentioned survey: “Recently, there has been talk about the possibility of an economic recession. While a recession is far from certain, are you planning to change your investment allocation (ex. stocks, bonds, etc.) or investment preferences?”

    The majority of participants responded that they would not change investment allocation.

    Here are the answers:

    No, I am planning to continue investing per usual (44%)
    Yes, I am planning to invest more conservatively (16.1%)
    Yes, I am planning to invest more aggressively (3.8%)
    Unsure, or none of the above (36.1%) 

    Let’s say that 70% of this 44 % have a well-diversified portfolio. That is in the best case. The other 30% maybe are not informed about how dangerous can be if they don’t change the investment allocation in time of recession or awaiting it.

    Recession fears 

    The stock market can also warn of an approaching recession, but that’s not always the case. The member of the Traders-Paradise team has a witty remark on this, saying that the stock market has guessed ten out of five recessions. Yes, it is a joke but in some cases, the stock market can forecast the recession.

    The inverted yield curve, for instance, can show that there will be a recession but not when. One thing is certain, the market can move but the economy couldn’t be changed overnight. The bad data has to be present in the market for a longer period than one month and not even than you cannot be sure that recession is coming. 

    Claudia Sahm, a Federal Reserve economist suggested a method to detect a recession more quickly. In a new paper, she introduced a system to more quickly detect and react to a recession. The full paper is here

    Who can say for indisputable when the next recession will happen? No-one. But if you have recession fears, you are in the great club. A lot of surveys show that Americans are afraid that a new recession will come soon and they are taking some steps as a response. The recession fears are well-known in the whole world. We all feel fears of a recession. 

    So, Americans, you are not alone.

  • How to profit from The Stock Market Plunging?

    How to profit from The Stock Market Plunging?

    The Stock Market Is Plunging But You Can Profit From It

    By Guy Avtalyon

    The stock market is plunging but will it crash or not is still unknown. It isn’t easy to predict the stock market crash because it occurs suddenly. The point is to be prepared for such a scenario and here are several ways on how to do so.

    I don’t want to frighten you, but we have to talk about the stock market plunging.

    The volatility of the markets is back again. Actually, the market is plunging. That is the data from the first six days in October. The S&P 500 has dropped a total of 83 points. Now it is almost 115 points lower than in September. Having this in mind, the trade war and the inverted yield curve, also, let us know how not to speak about a recession. 

    The stock market is plunging

    These gaps are standard. For the last 70 years, there were 37 corrections in the S&P 500. If our counting is good that is almost every second year. And mentioned drops were about 10%. Now, we have 5% and such were more common in history.

    This is the price we have to pay for long-term wealth making. So, you must understand that long-term investors have an advantage against the short-term since they would infrequently experience continuing damage from stock market corrections. Time and patience, wait for a bull market rally. It will nullify the correction in the stock market. Anyway, the point of long-term investing is to buy and hold. Hold on to your stocks, that is the key to winning in the long run.

    I warned you how difficult this year can be. But when investors’ fears overwhelm the market and the stock market is plunging, there is still something you can do.

    Is a safe-haven stock right move?

    Yes, you can thrive during the stock market correction if you buy safe-haven stocks. For example, buy gold. The gold is a store of value, so it is a safe-haven asset.

    The truth is that you will not gain a lot of profit by holding gold for a long time. It is a physical commodity, there is no dividends. So think about buying a stake of shares in some companies that produce the jewelry or anything of gold instead. Also, a good choice is to buy shares of mining. This is also a suitable alternative when the stock market is plunging and getting lower.

    Stocks with low volatility

    Companies that provide constant profits, pay a dividend, and have low volatility can be very beneficial when the course in the market turns. Some of them will give you yield much bigger than the yield of a 10-year Treasury bond, for example. Find some company with the old fashioned model of business. Yes, it can be boring but in the long run, it is excellent. The point is to survive the market plunging.

    Basic goods and utilities as a safe investment

    Buying stocks of some companies that produce cleanser or hygiene is an excellent choice. People will always need to be clean and they will buy these products no matter how deep the crisis is. Also, stocks of energy companies. They are not low-cost but they are eternal. Even more, these defensive basic-need stock can grow in a volatile market.

    What to do when the stock market is plunging?

    Many things in the markets depend on risk tolerance. Your investment portfolio is based on risk tolerance. The main problem with the stock market plunging and when it crashes is that they are coming suddenly, no one can be sure that the crash will come and when, or the market will recover. Market crashes happen quickly, there is no warning. The problem with investors’ risk tolerance is that is very hard to adjust it depending on circumstances, especially during the bear market. You’ll be emotional, panicked, you will be encompassed by fears. To avoid all of these, take care of your portfolio structure. You should hold liquid assets, such as cash, bonds. When the market crash occurs you need a through-out scenario to avoid losses. Liquide commodities will provide you that. 

    Being an investor means you have to put your feelings away. You have to make your decisions separate from them.
    Investing is magnificent. But life is also.

    During the bear markets, even trivial corrections can be remarkably dangerous.  But at the same time, bear markets will offer you great moments. The point is to know what you want and where are looking for. But Warren Buffett thinks about bear markets as buying opportunities. The trick is that in such market periods the stock prices of large companies are going down. When that moment occurs watch in your favorite stocks. The time will do the rest. You should buy it when others are selling.

     

  • The Yield Curve is Inverted – Be Worried

    The Yield Curve is Inverted – Be Worried

    5 min read

    The yield curve is inverted - Be Worried

    by Gorica Gligorijevic

    The yield curve displays the price of borrowing money in the bond market. In essence, it is a way to measure bond investors’ feelings about risk. The yield curve has a great influence decision about your investments in the bonds market.

    We are very often talking about interest rates as all rates work in the same way. But the reality is far more complicated.
    You’ll find rates on different bonds behaving differently from one to another. It depends on their maturity. 

    A yield curve gives us the possibility to clearly see this difference. 

    It’s a graphic representation of the yields available for bonds of equivalent credit status but different maturity dates. A yield curve can be used to estimate the direction of the economy if we are analyzing government bonds.

    The yield curve follows the interest rates of bonds. And particularly important is the spread between 2 and 10 years Treasury bonds. Using it you can measure the way investors think about risk and prospects for economic growth.

     

     The yield curve

     

    When investors are worried or get nervous about economic growth, the yield curve inverts. What that means is that short-term interest rates become higher than longer-term ones.

    The short-term bonds carry lower yields as a reflection of the fact that an investor’s money is at less risk. The reason behind is the longer you invest, the more you should be rewarded, or rewarded for the risk. You can see the normal curve yield when bond investors suppose the economy to develop at a normal pace. The investors don’t feel there will be some radical changes in the rate of inflation or significant gaps in credit availability.

    But sometimes, the curve’s configuration diverges. That is a signal of possible turning points in the economy.

    Then we can say it is an inverted yield curve.

     

    The inverted yield curve

     

    Many studies confirmed the ability of the slope of the yield curve to predict recessions. And in the past 50 years, every recession in the US followed such inversion, while only once the inverted yield curve was not followed by a recession.

    An inverted yield curve marks a point on a chart where short-term investments in bonds pay more than long-term ones. When they turn up it is a bad sign for the economy.

    Receiving more interest for a short-term rather than a long-term investment doesn’t seem to have any economic sense.
    To make this clear, when you put your money in the bank, the bank will pay you interest rate. If you put your money on 6 months the interest rate is lower than if you put it on 6 years.

    But can you imagine if this was inverted? Imagine the situation when the bank pays more for the 6 months than the 6 years.

    That is happening when the investors’ fears of an impending recession are growing. In such periods investors are selling stocks and shifting their money to the long maturity bonds. That means they don’t trust in the economy and want to secure their capital until the storm passes. Honestly, it is a better solution than potential losses they could make by holding stocks during the recession. 

    But, what happens? 

    As demand for bonds increases, the yield they pay decreases.

    This kind of investors’ loss of confidence is followed by an inverted curve yield. We can see that since 1956.

    Also, the inversion started in December 2005 and announced the Great Recession. It actually started at the end of 2007, but the full-blown crisis occurred in 2008. 

    Furthermore, an inversion was noticed before the tech bubble burst in 2001.

    That’s why inversion is so horrible. Does this mean that we have a big downturn in the stock market? Not for sure.

    Inversion of the US Treasury yield curve caused a great reaction in markets last week. Losses were around 3% for the major US indices in one day. The media were on fire. And the whole world as well.

    Yet, the curve yield had reverted by the end of the week. 

     

     

    But it can invert again in the coming months. Let’s contemplate why fear may not be realistic.

    First of all, investors would lock up their capital if they feel that that the yield on the long maturity will fall dramatically.
    That would be a sign that the US economy was to slow noticeably.

    But investors will buy bonds when expecting price appreciation, also.

    Last week in Europe, many bonds sloped down in yield. 

    That produced the stock of negative-yielding bonds to over $16 trillion. 

    Who will be the savior? 

    The European Central Bank. It can easily restart its large-scale assets-buying program and, by doing so, push its policy rates even more into negative. 

    The other reason, international bond markets are more connected than national markets. Meaning, what’s occurring to US yields is also a consequence of what’s happening abroad. We saw this last week when the US curve inversion reflected insufficient growth indicators from China, Europe, and Singapore.

    Germany, Europe’s largest and most stable economy had an influence too.

    On Sunday, August 18, White House trade adviser Peter Navarro told CNN‘s, Jake Tapper:

    “Technically, we did not have a yield curve inversion. An inverted yield curve requires a big spread between the short and the long –we had a flat curve that was a weak signal of any possibility. In this case, the flat curve is the result of a strong Trump economy.”

    The fact is that the inversion did happen. 

    Many experts admit this inversion should make you worried.

    The yield curve “is one of the most reliable market indicators that we have and it’s not sending real warm and fuzzy signals,” said Mark Cabana, head of US Rates Strategy at Bank of America Merrill Lynch Global Research.

    Yes, the inverted yield curve isn’t a 100% sure sign for inflation or recession but, according to Bank of America, since late March, the gap between 3-month interest rates and 10-year has inverted on and off.

     

  • CRISIS – Analysts Have BLACK FORECAST FOR 2019

    CRISIS – Analysts Have BLACK FORECAST FOR 2019

    CRISIS - BLACK FORECAST FOR 2019Analysts have black predictions for the coming year. The crisis is knocking the door.

    By Traders-Paradise Team

    We will face the worst crisis, which is the analysts’ prediction. Here is the selection of their statements.

    “The European Union is about to implode this year.” investor Mitch Feierstein has predicted in a New Year episode of the Keiser Report. He also unveils which country will become the next Greece. The answer is surprising.

    This year will be hard for Europe not only due to Brexit. The other member states could also bring the bloc down, according to Feierstein. “Nationwide protests in France are only the first sign of looming wider unrest,” the analyst stated to Russia Today.

    “You are gonna see global unrest. I think you’ll it as a feature in Italy when the EU tries to bully them,” the British-American investor noted, citing infective “draconian austerity measures.”

    But, not only Italy but also France could follow the fate of debt-ridden Greece, Feierstein warned. He noted the low approval rating of President Emmanuel Macron, rising unemployment, and huge wealth inequality in the country.

    “Italy has got four trillion in loans they said there are not going repay… France has got a similar situation but they’ve got civil unrest with the population burning down Paris. So one of them will leave,” he predicted.

    Both countries have been breaking EU budget rules.

    After just one year of compliance in 2018, Paris announced that its budget deficit for 2019 is set to be 0.2 percent higher than the three percent threshold that the bloc’s rules allow. Brussels agreed to tolerate the breach. The same as it had been doing so for almost a decade before Macron’s presidency.

    Italy has also been at loggerheads with the 28-nation union. Last year, the EU Commission wanted to put Italy in an economic disciplinary program over a serious breach of EU regulations on debt. The standoff between Rome and Brussels was settled only in mid-December when Italy agreed to a budget deal despite domestic criticism from the opposition.

    But Mitch Feierstein is not alone.

    The economist Nouriel Roubini, also known as Dr. Doom also warns that we are in the midst of a new asset bubble that could end in a crash bigger than that in 2008.

    He made a list of 10 reasons why the world is at the threshold of a new crisis. Almost each of them begins and ends with a single name – Donald Trampa. But also insults on his account.

    As the first reason for the new crisis, Nouriel recognizes the fiscal-stimulus policies that are currently pushing the annual US growth rate above its 2% potential are unsustainable. His opinion is that by 2020, the stimulus will run out, and a modest fiscal drag will pull growth from 3% to slightly below 2%.

    Second, the US economy is now overheating, and inflation is rising above target. The US Federal Reserve will thus continue to raise the federal funds rate from its current 2% to at least 3.5% by 2020. That will likely push up short- and long-term interest rates as well as the US dollar.

    “The inflation is also increasing in other key economies, and rising oil prices are contributing to additional inflationary pressures. That means the other major central banks will follow the Fed toward monetary-policy normalization, which will reduce global liquidity and put upward pressure on interest rates.” – wrote Nouriel for The Guardian in September last year.

    In his explanation he wrote further:“… once a correction occurs, the risk of illiquidity and fire sales/undershooting will become more severe. There are reduced market-making and warehousing activities by broker-dealers. Excessive high-frequency/algorithmic trading will raise the likelihood of “flash crashes.” And fixed-income instruments have become more concentrated in open-ended exchange-traded and dedicated credit funds.”

    A new recession wave is coming

    Joze Mencinger,  Slovenian lawyer, economist, and politician, believes that the world is waiting for a new wave of economic instability. He is also called the architect of the Slovenian transition.  

    “Lately most of the crisis has been due to a lack of demand, because, mankind has no problem on the supply side, we have a problem on the demand side. We can simply say that the production of a car is cheaper than its sale,” Mencinger believes.

    If there is just one question in this test: is the world awaiting a new crisis? It is frightening, but these economists would complete a positive answer.

    There are many indications that growth will slow down. And this is in a way accepted today by IMF and World Bank officials in projections for next years.

    Contrary to these catastrophic forecasts, we have to notice. In order to make a recession, employment usually falls, and growth becomes negative, industrial production falls. All of these indicators are still strong and do not indicate that we are entering a recession. Of course, there are some events that can lead to it and this should be followed.

    The American stock market killed by a strong word

    December events on the US stock market are, of course, something to be watched.

    It all began before the Catholic Christmas when American brokers had the worst Christmas Day ever. The stock indices seemed to have been riding on the roller-cruiser because they returned to the highest level since 2009 the next day. Blumberg described this situation as bizarre.

    The financial sector overlooks the real sector. Because in the real sector there are no such swings.

    And it looks that the term ”bizarre” is just fine.

    It seems that in December last year the US stock market killed a too strong word. The market did not come as a result of the fact that the US Federal Reserve Administration raised interest rates. From the tightening of the monetary policy, the much worse exchange was a “verbal delict”.

    The market is always sensitive to what the officials of powerful states declare.

    And perhaps officials today are not completely aware of this, but their word affects the markets. This is not a new phenomenon. This is well known and therefore traditionally central bankers give very careful statements. The fact is that their word is analyzed and evaluated by the investment public. It can affect the movement of prices in the financial market.

    The bubble pops off in one place, but the crisis arrives everywhere

    Big crises are like blowing balloons. The bubble that began to swell at the end of December soon vanished.

    And it’s just when the indexes have come close to nearly 20 percent. This is considered a border, after which what investors call “bear market”. This means that the stock market is on a descending path and that the bad days are coming. Fortunately, this time it did not happen.

    But, unlike in 2008, the governments had the policy tools needed to prevent a free fall.

    ”The policymakers who must confront the next downturn will have their hands tied while overall debt levels are higher than during the previous crisis. When it comes, the next crisis and recession could be even more severe and prolonged than the last”, pointed Nouriel Roubini.

    The truth is one if we enter the new crisis. People around the world will pay these costs, and this will guarantee profits primarily to the super-rich. After all, they own property. Whether it is a state tax, an increase in the purchase price of goods and services, or any fees for services.

    With the cut of costs, the rest of the welfare state will make this enormous debt will pay billions of the people by their work and their mostly poor income.

     

Traders-Paradise