Today JP Morgan became the latest casualty of forecasters when they racheted down their predictions of US economic growth for the second time this year. The numbers were huge. They reduced GDP growth for the third quarter down to 1.5% from 2.5% and for the fourth quarter down to 2.0% from 3.0%. For those of you not too up on mathematics that equates to a 40% reduction in growth for the third quarter and a 33% reduction in growth for the fourth quarter.
Furthermore they increased their expectation of the unemployment level to 10%. Previously they had estimated that unemployment levels would drop to 9.6%. The reality of the weak underlying economy is starting to show up these overly optimistic forecasts and I expect that this will start to be reflected in the stock market.
Already today the market is off more than 1.5% and I expect that this is just the start of a very long drawn out demise in the value of all stocks.
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Steve, Would you recommend a double short position say SDS or SRS? What other hedge may be appropriate for an equity portfolio. Jeff Strong
ReplyDeleteJeff,
ReplyDeleteThose could both work and if you want to get more aggressive you can look at FAZ, TZA and BGZ. The only issue I have with these is that the slippage over the long term can affect the returns. In all cases, depending on your elvel of trading versus investing I would not get too aggressive with these products.
Other ideas are buy put options on underlying positions as protection or sell call options against those positions to pocket some extra return as the market falls.
A final option would be to find a bear fund or a fund that is prepared to go short and allocate some of the investment into that.
Regards,
Steve