Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Stop Believing The 'Economy' Is The Same As The Stock Market - 12th Jul 20
Spotify Recealed as The “Next Netflix” - 12th Jul 20
Getting Ahead of the Game: What Determines the Prices of Oil? - 12th Jul 20
The Big Short 2020 – World Pushes Credit/Investments Into Risk Again - 11th Jul 20
The Bearish Combination of Soaring Silver and Lagging GDX Miners - 11th Jul 20
Stock Market: "Relevant Waves Vs. Irrelevant News" - 10th Jul 20
Prepare for the global impact of US COVID-19 resurgence - 10th Jul 20
Golds quick price move increases the odds of a correction - 10th Jul 20
Declaring Your Independence from Currency Debasement - 10th Jul 20
Tech Stocks Trending Towards the Quantum AI EXPLOSION! - 9th Jul 20
Gold and Silver Seasonal Trend Analysis - 9th Jul 20
Facebook and IBM Tech Stocks for Machine Learning Mega-Trend Investing 2020 - 9th Jul 20
LandRover Discovery Sport Service Blues, How Long Before Oil Change is Actually Due? - 9th Jul 20
Following the Gold Stock Leaders as the Fed Prints - 9th Jul 20
Gold RESET Breakout on 10 Reasons - 9th Jul 20
Fintech facilitating huge growth in online gambling - 9th Jul 20
Online Creative Software Development Service Conceptual Approach - 9th Jul 20
Coronavirus Pandemic UK and US Second Waves, and the Influenza Doomsday Scenario - 8th Jul 20
States “On the Cusp of Losing Control” and the Impact on the Economy - 8th Jul 20
Gold During Covid-19 Pandemic and Beyond - 8th Jul 20
UK Holidays 2020 - Driving on Cornwall's Narrow Roads to Bude Caravan Holiday Resort - 8th Jul 20
Five Reasons Covid Will Change SEO - 8th Jul 20
What Makes Internet Packages Different? - 8th Jul 20
Saudi Arabia Eyes Total Dominance In Oil And Gas Markets - 7th Jul 20
These Are the Times That Call for Gold - 7th Jul 20
A Reason to be "Extra-Attentive" to Stock Market Sentiment Measures - 7th Jul 20
The Beatings Will Continue Until the Economy Improves - 6th Jul 20
The Corona Economic Depression Is Here - 6th Jul 20
Stock Market Short-term Peaking - 6th Jul 20
Gold’s Major Reversal to Create the “Handle” - 5th July 20
Gold Market Manipulation And The Federal Reserve - 5th July 20
Overclockers UK Custom Build PC Review - 1. Ordering / Stock Issues - 5th July 20
How to Bond With Your Budgie / Parakeet With Morning Song and Dance - 5th July 20
Silver Price Trend Forecast Summer 2020 - 3rd Jul 20
Silver Market Is at a Critical Juncture - 3rd Jul 20
Gold Stocks Breakout Not Confirmed Yet - 3rd Jul 20
Coronavirus Strikes Back. But Force Is Strong With Gold - 3rd Jul 20
Stock Market Russell 2000 Gaps Present Real Targets - 3rd Jul 20
Johnson & Johnson (JNJ) Big Pharma Stock for Machine Learning Life Extension Investing - 2nd Jul 20
All Eyes on Markets to Get a Refreshed Outlook - 2nd Jul 20
The Darkening Clouds on the Stock Market S&P 500 Horizon - 2nd Jul 20
US Fourth Turning Reaches Boiling Point as America Bends its Knee - 2nd Jul 20
After 2nd Quarter Economic Carnage, the Quest for Philippine Recovery - 2nd Jul 20
Gold Completes Another Washout Rotation – Here We Go - 2nd Jul 20
Roosevelt 2.0 and ‘here, hold my beer' - 2nd Jul 20
U.S. Dollar: When Almost Everyone Is Bearish... - 1st Jul 20
Politicians Prepare New Money Drops as US Dollar Weakens - 1st Jul 20
Gold Stocks Still Undervalued - 1st Jul 20
High Premiums in Physical Gold Market: Scam or Supply Crisis? - 1st Jul 20
US Stock Markets Enter Parabolic Price Move - 1st Jul 20
In The Year 2025 If Fiat Currency Can Survive - 30th Jun 20
Gold Likes the IMF Predicting a Deeper Recession - 30th Jun 20
Silver Is Still Cheap For Now - 30th Jun 20
More Stock Market Selling Ahead - 30th Jun 20
Trending Ecommerce Sites in 2020 - 30th Jun 20
Stock Market S&P 500 Approaching the Precipice - 29th Jun 20
APPLE Tech Stock for Investing to Profit from the Machine Learning Mega trend - 29th Jun 20
Student / Gamer Custom System Build June 2020 Proving Impossible - Overclockers UK - 29th Jun 20
US Dollar with Ney and Gann Angles - 29th Jun 20
Europe's Banking Sector: When (and Why) the Rout Really Began - 29th Jun 20
Will People Accept Rampant Inflation? Hell, No! - 29th Jun 20
Gold & Silver Begin The Move To New All-Time Highs - 29th Jun 20
US Stock Market Enters Parabolic Price Move – Be Prepared - 29th Jun 20
Meet BlackRock, the New Great Vampire Squid - 28th Jun 20
Stock Market S&P 500 Approaching a Defining Moment - 28th Jun 20

Market Oracle FREE Newsletter

AI Stocks 2020-2035 15 Year Trend Forecast

They'll Cry "Black Swan" While You Book Double-Digit Gains

Companies / Investing 2015 Apr 02, 2015 - 12:40 PM GMT

By: Money_Morning

Companies

Peter Krauth writes: According to the Fed, in retrospect, the mortgage crisis of 2007 was a black swan, an unknowable and unpredictable negative outlier event that triggered financial panic and chaos around the world.

Eight years later, these "rare birds" remain as elusive as ever to central bankers and policymakers everywhere.

Over the same time frame, worldwide debt has ballooned by 40%.


It's a bubble – inflated by the European Central Bank, of course – that's floating in a room filled with pins; that room just happens to be Greece.

And that situation has just handed us an unlikely opportunity to profit and defend ourselves at the same time.

Remember, by their very definition, black swans simply disappear when you see them coming…

It's So Simple, a Child Could See It

If you asked any fifth grader what to do about too much debt (or anything else), she'd probably say "Just pay it back, or get rid of some."

Which of course is perfectly logical.

But for Greece that would mean paying the piper, or for lenders it would mean booking gargantuan losses.

Which is exactly why it won't happen.

Instead, within just seven short years, the world's total debt has gone from $142 trillion to $200 trillion.

Greece is easily the problem's poster child. Although its economy is just 1.4% of the EU's, it's the most indebted nation in the entire union, owing 323 billion euros, an amount it can never hope to repay.

But if you dig a little deeper, you'll see why Brussels is doing whatever it takes to keep Greece in the club.

Greece Isn't the One Being "Saved" Here

I've said numerous times that bailouts for Greece are really about saving French, German, and other banks which hold tons of toxic Greek debt.

Now a top official from the IMF has come out and confirmed this.

Paulo Batista, an executive director of the IMF, told Greek private Alpha TV in a recent interview: "They gave money to save German and French banks, not Greece".

Batista is a weighty voice, representing eleven Central and South American nations at the IMF. He criticized the Fund meant to help poorer nations, saying outsized help is given to Europe over developing nation members.

To be sure, the "help" doesn't end there, either.

Fresh Quarry in the Great Yield Hunt

ECB president Draghi's 1 trillion euro bond-buying bazooka began firing last month.

Odds are good it will have an effect similar, if muted, to the Fed's which has levitated stocks for the past several years.

We've already seen that start to happen in European stocks, which have entered rally mode since early January.

The ECB's QE program will only target the debt of sovereigns and certain quasi-governmental financial institutions.

But with the questionable health of the European Union, I expect investors will quickly realize there's an alternative bond sector with better yields, which as least pays positive yields.

I think quality European corporate bonds are the next bond subsector to get bid up as investors chase yields. Right now, you still have a chance to get in.

Here's the Profit Play

Interestingly, consumer confidence in Europe has reversed dramatically of late with renewed optimism.

Europe's mega-QE program will put a premium on higher quality corporate debt for better yields and capital gains.

In February, Royal Dutch Shell Plc. (NYSE ADR: RDS.A), Procter & Gamble Co. (NYSE: PG), Nestle SA (VTX: NESN), Novartis AG (NYSE ADR: NVS), and Sanofi SA (NYSE ADR: SNY) saw their borrowing costs head into negative territory. I believe this is a sign of more to come for corporate bonds in Europe.

An attractive way to target this opportunity is with the SPDR Barclays International Corporate Bond ETF (NYSE Arca: IBND).

This ETF's holdings consist of 52% corporate finance, 40% corporate industrial, and 8% utilities.  In terms of quality, 27% of bonds are rated Baa, 53% are rated A, 19% are rated Aa, and 1% is Aaa. 83% of these bonds mature anywhere between 1 and 10 years, with an average maturity of 5.65 years.

Geographically, 22% of holdings are actually in the United States, but 76% are European, and the 2% balance includes issues from Japan, Hong Kong, Mexico, India, and Israel.

The ETF's current yield is about 1.57% and has net assets of $246 million, an expense ratio of 0.55%, and trades on average 113,000 shares daily.

The International Corporate Bond ETF currently sits about 3% above its 52-week low. If the shares return to their previous high of $38.05, and I think that's a realistic target, we're looking at a 22% gain from here, on top of any yield.

The best way to play it: use two trailing stops.

First is a hard stop of $30.34 (its recent low) on a closing basis, which if reached is just a 3% loss.

The second is a 7% trailing stop which is narrow because of the lack of volatility. So you have a potential 3% downside with a possible 22% upside, providing a great risk-reward setup.

Some decent profit remains yet to be squeezed out. With a disciplined strategy, you can share in those gains with little risk.

Of course, when the bottom drops out, the central bankers will call it another black swan – but markets can remain irrational for a pretty long time.

Source :http://moneymorning.com/2015/04/02/theyll-cry-black-swan-while-you-book-double-digit-gains/

Money Morning/The Money Map Report

©2015 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules