Last week the data emerged from the Chicago Board of Options Exchange showing that some wealthy trader with an enormous amount of money has placed a multi-million dollar sized wager on stock market volatility surging in the upcoming months through the end of the year. This trade has already become the biggest CBOE volatility index trade for the year, per Head of Derivatives Strategy Pravit Chintawongvanich of Macro Risk Advisors.
At the same time, a respected Morgan Stanley analyst is out calling for a full bear market correction of at least 20 percent across stock markets by the second half of the coming year. What these traders and analysts know argues strongly for you buying some gold to hedge your investment and retirement portfolios. Gold offers insurance and protection during market turbulence as it has for the past 5,000 years of recorded human history. Think over how to invest in gold while there is still time.
Option Trade on CBOE Volatility Index Gives Hyper Bullish Analysts Pause for Thought
While the CBOE Volatility Index has been trading at all time low levels most of this year, at least the one mega options trader who has crafted this massive option play does not believe it is sustainable much longer. The options trade itself was executed so that it will profit if and when the VIX rises into the high teens to mid twenties. It would be a near-doubling of the low levels we have seen in the VIX even recently. Chintawongvanich warned:
“I think it’s a good hedge… I think they probably own a lot of stocks, a lot of things that would go down if North Korea risk escalates, or maybe something else, tech stocks pull back. The point is, they probably need protection, and they think it’s a good place to get in there doing that, with the VIX being at extremely low levels.”
With stocks mostly rising this year, the so-called fear gauge index briefly plunged to its lowest ever recorded point at under 9 back in July. The VIX as a measurement of anticipated thirty day volatility for the S&P 500 generally moves the opposite direction of the S&P 500 index itself.
This mystery trader has put on as many as an astonishing 3.15 million call contracts on the VIX for the year. Should the fear gauge rise moderately during the next one to two months, then the trader who has quietly poured a small fortune into these options will do well, netting a cool more than $260 million in profits.
Morgan Stanley Analyst Agrees with Idea of a Significant to Severe Market Pullback
It is not only the mystery trader who expects the bottom to fall out of the runaway stock market sometime in the coming months though. Chief Equity Strategist Mike Wilson of Morgan Stanley anticipates that after the markets top out at 2,700 on the S&P 500 by this end of the year or early next year that a serious bear market correction is in the cards for the first to second half of 2018.
Wilson anticipates that this anticipated bear market correction will plunge the markets down a full 20 percent plus. It is a sobering position from the analyst who currently maintains what is among the highest stock market targets you can find on Wall Street these days.
On the way to this new high which he anticipates happening soon, he sees the chances of a five to six percent market pullback in late October to early November. After this, once the 2,700 S&P 500 target is achieved, Wilson is looking for the 20 percent bust styled decline to kick in next year:
“We’ll get to 2,700 first, and then the timing of the beginning of the cyclical bear could be imminent. It could be any time after that. It could be as early as the second half of next year.”
But what would cause all of this spectacular boom then bust runs to occur in the first place? Wilson says that it might be the tax reform debate that triggers his looked for selloff in the late fall. This becomes more the case if Congress will not agree on and approve the primary ideas and legislation of the Trump tax cut. The Republican-controlled Congress and the White House worked together to craft this tax cut plan which slashes the present number of seven individual tax brackets down to only three with a lowered corporate tax rate of only 20 percent (down from the current 35 percent corporate rates).
The most important thing for you to keep in mind is that 20 plus percent falls in the stock markets are not aberrations. They all too often occur after any bull market of five years or more. This present day bull market has gone on instead for eight long years. Wilson opined:
“We probably won’t see the euphoria we saw in the late ’90’s any time soon. The scar tissue is still too thick.”
As a case in point, should the S&P actually attain 2,700, this would represent a staggering 300 percent increase from the low of the Global Financial Crisis of March 2009. This is a nearly unheard of rally in a market that has not actually been fueled by a real economic recovery or alternatively dramatic and sustained increases in earnings of the constituent index companies. Wilson explained:
“I think this is the trick… Be careful what you wish for. We’re late cycle… We’re looking for the boom, bust. The boom is the bump and euphoria from fiscal stimulus, and investors could get excited about tax cuts sometime early next year. It actually brings the end of the cycle. That’s the irony.”
The Inevitable Market Fall Is Yet Another Good Reason To Hedge Your Portfolios by Buying Gold
As if all of these predictions are not bad enough, it has not even been a month since three major investment banks warned that “winter is coming” to the stock markets and soon. When Britain’s global behemoth HSBC (Hong Kong Shanghai Banking Corporation of London), American giant Citigroup, and American investment bank Morgan Stanley all agree on anything in the markets so specific as this prediction, it is time to sit up, take note, and make urgent and serious preparations to defend your financial assets and retirement accounts too.
All stock markets pull back eventually. It is practically an economic law. Not one financial market in all of history has ever gone up in a perfectly straight line, nor risen dramatically and inexplicably like this one in the West developed world has for nearly a decade.
The idea behind a good portfolio hedge is that you put it on while the economic environment still looks eternally rosy. Then when the rainy days set in, you will be well prepared with your retirement portfolio so that it does see dramatic and painful declines of over 20 percent in a matter of either weeks or months. At such a point in time it is too late to take effective preventative measures, when the bottom has already caved.
Gold is your best and last historically proven line of defense against the inevitable stock market bear market. This is why you need a gold IRA. Add gold to your portfolio now while you still can. Your future retirement will thank you for it one day. Time to review what gold goes in an IRA.