Equities all over the world are very expensive thanks to three factors: a) increase of money supply by central banks, b) ZIRP and c) central banks’ direct purchases of assets. It sounds a little bizarre because the central bank print currency out of thin air and buys equities – something of real value. This is our reality – the Bank of Japan and the Swiss National Bank are already on the record admitting their guilt. It would be naïve to believe they are the only ones breaking the protocol. Ultimately, extraordinary circumstances – extraordinary measures, right?
Killing the enemy? More power? More control? Which one is it at the end of the day?
For many years, those who were speaking loudly about a possibility of gold and silver price manipulations were branded tin-foil conspiracy theory seekers.
After the CFTC 5-year investigation was concluded its verdict just cemented the view that there was no manipulation what so ever. You wouldn’t expect any other outcome if the head of the agency was a former Goldman employee, would you?
In March, I participated in Fx Cuffs conference as a speaker giving a 1,5h talk. My face wasn’t covered by the Stig’s helmet or veiled by burqa as it was anticipated :-)
During my time on the stage, I talked about equity markets, bonds, real estate and commodities highlighting effects of interventions of central banks. I pointed out assets that have great investment potential due to their today’s prices and can store your capital during the incoming crisis.
Precisely on 20th January prices of many assets experienced local lows. This goes both for equity markets in developing and developed countries, commodities and precious metals. During next three months, previously expensive markets like American equities rose significantly while very cheap assets –equities in Russia or mining companies – exploded with growth of 41% and 100% respectively. Everything in just one quarter.
In part one, I showed you how you can insure profits of your position without closing it. At first glance, everything seems clear but theory and practice sometimes differ. You may face many problems when insuring revenue of your portfolio especially when its ingredients are less popular instruments. Here I want to show you what problems to look out for when you choose to use options.
Every investor familiar with stock exchange, even a beginner, knows what equities, bonds and futures are. Those who know what an option is and understand how to use them are much harder to find. Options can be of speculative nature but they also secure your gains and profits. The latter is an aspect that you will know more about after reading. How can you ‘insure’ your position, which already gave good return, but you’re not sure whether the asset could still grow and you don’t want to close the position yet?
Shorting a market, profiting from its decline, was never easy. Situation made itself even more complicated after 2008 when central banks started to use whole arsenal of their tools to manipulate markets. To create an illusion of growth and prosperity they gambled with equities and the real estate. Last bull market was there because of ZIRP, global increase of money supply and central banks being on a shopping spree and buying stocks directly. The Bank of Japan and the Swiss National Bank openly admitted investing in shares or REITs. Basic critical thinking tells us that other banks probably have done the same but not everyone is required to publish reports complex enough to show everything.
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