Asset inflation - investment advice?

[manarak]

I have been following the asset price inflation issue since 2015, and the FED seems unable to tighten money supply while the ECB expands its bond purchase programme, I am increasingly worried about the stock market and a possible crash.

 

I also wonder what I could possibly do to immunize my investments against such crash except selling stock index futures or converting everything to cash.

 

Any other ideas for an asset class that would benefit from a crash?

But as fund managers currently have the same problem, I expect asset price inflation to have taken hold in all asset classes that are accessible to me, including commodities and gold.

 

 

[tonray]

No need to sell stock index futures. ETF managers can do that for you. There are many 'short' ETFs that can add a hedge to your portfolio. You can also buy ETFs that specialize on volatility, buy when volatility is low if you expect a crash. You could also hedge using fixed income instruments (bonds). you have many options depending on what you want to accomplish.

 

But to do this effectively you would need to calculate your portfolio's beta and then buy enough of a hedge to offset the expected volatility you might experience given the scenarios you envision happening.

[Oxx]

Gold - possibly.

 

Inflation linked bonds (e.g. TIPS) - possibly.

 

But there are no guarantees following the introduction of bizarre economic policies across the globe.

 

Rather than using futures, far better to use options for downside protection since Armageddon may not come.

 

Short ETFs are useless in this respect because they are rebased daily.  They do NOT provide the inverse performance of the index being (negatively) tracked.  (Very common misconception.)  They are not suitable for 99.999% of retail investors.  Morningstar article on the subject:  http://news.morningstar.com/articlenet/article.aspx?id=271892

[tonray]

57 minutes ago, Oxx said:

Gold - possibly.

 

Inflation linked bonds (e.g. TIPS) - possibly.

 

But there are no guarantees following the introduction of bizarre economic policies across the globe.

 

Rather than using futures, far better to use options for downside protection since Armageddon may not come.

 

Short ETFs are useless in this respect because they are rebased daily.  They do NOT provide the inverse performance of the index being (negatively) tracked.  (Very common misconception.)  They are not suitable for 99.999% of retail investors.  Morningstar article on the subject:  http://news.morningstar.com/articlenet/article.aspx?id=271892

That's nonsense. You recommend options for retail investors....perhaps they can spend a decade learning about options first. To say short ETFs are useless is obviously someone who has never looked at the charts on an inverse fund during a market decline.

[Oxx]

1 hour ago, tonray said:

To say short ETFs are useless is obviously someone who has never looked at the charts on an inverse fund during a market decline.

 

You think I didn't bother to read the article I linked to before posting the link? And I've studied numerous similar articles in the past.  I suggest you have a read.  You might learn something.  Inverse ETFs are complex products and do NOT do what it says on the tin.

 

Straightforward options are not complicated, and it's ludicrous to suggest you need to spend a decade learning about them.  There's nothing complex about buying an out-of-the money put option against an index to protect against any downside.  And, unlike inverse ETFs, the option's behaviour and the protection it provides are 100% predictable and reliable.

[manarak]

the situation is worrying - there are huge masses of money orbiting the markets, further inflated by the FED's QE and ECB's bond buying.

every pension fund and other funds wants to find investment, driving prices of every investment up beyond what is economically justifiable, and that includes bonds - when I studied finance, negative bond yields was something only mentally insane investors would consider investing in.

In my opinion, everything is over-inflated and these positions are built on very cheap, nearly zero interest debt, so if the FED starts raising rates, this mountain of investment = debt will crumble, including bond markets.

 

About the instruments - I confess I don't use ETF much because these don't seem straightforward to me.

 

I confess I completely forgot about volatility derivatives, although I was there in 1998 when the first volatility future was launched on the DTB, but the most use I got from it were probably the italian bubbly white wine and the sandwiches from the launch party.

 

I have a degree in financial mathematics and financial products and as a former registered trader on the DTB and a handful of other exchanges, I have a good understanding of derivatives.

The problem with options is often the lacking liquidity at out of the money strikes and the time value the market makers require for expiries far in the future - options are best traded at strikes 10-15% around the current future price for maturities shorter than 3 months.

 

Futures, while scarier, are much more economical since there is no volatility premium, there is just the base which can be explained by carry costs for the underlying and possible dividend effects.

 

...

 

But I was looking for asset classes that might do well incase sand gets in the asset inflation machine.

 

I dislike gold for various reasons.

 

 

[tonray]

2 hours ago, Oxx said:

 

You think I didn't bother to read the article I linked to before posting the link? And I've studied numerous similar articles in the past.  I suggest you have a read.  You might learn something.  Inverse ETFs are complex products and do NOT do what it says on the tin.

 

Straightforward options are not complicated, and it's ludicrous to suggest you need to spend a decade learning about them.  There's nothing complex about buying an out-of-the money put option against an index to protect against any downside.  And, unlike inverse ETFs, the option's behaviour and the protection it provides are 100% predictable and reliable.

Look at the chart of the Sp-500 during declines and look at the chart of an inverse fund during the same period. Reading an article does not make you an expert. When the market declines, inverse funds go up in a remarkably similar fashion. Like Magic. Good luck.

[manarak]

so.. any ideas about asset classes that might do well if the asset inflation bubble implodes and economies grind to a stop again?

[Asiantravel]

On ‎21‎/‎09‎/‎2016 at 10:55 AM, manarak said:

so.. any ideas about asset classes that might do well if the asset inflation bubble implodes and economies grind to a stop again?

 

"  if the asset inflation bubble implodes  "

 

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