OK, some of the journalist in Germany were talking about that since January. The DAX is too high, a correction will come and in general we are all doomed. Let's buy some bottled water, canned food and let us hide somewhere until everything is back on track......, right?
While we said weeks ago Germany is currently not the place to go long, the last days showed we were so right.
But something was different during the last days. While in July only Germany was weak and other market places were OK, now every market in the western hemisphere is suffering.
We were reading our favorite German newspaper for popular economy, Handelsblatt Online, to get an answer why this is happening. Beside the statement that a lot of people foresaw this correction due to overpriced stocks and finally they are right (surprise, surprise), they blame the profit of the companies are not good enough and mention as an example Adidas. Adidas just published a profit warning due to reduced business with Russia. OK, now we have a lead...
Russia, what would you do if your are a rich Russian with money in US and EU? You sit in your expensive mansion in Crimea or Moscow and you read Germany indent not to make or reduce business with Russia. You are not on the index yet but never now when you will be doomed. You will start to bring your money to more save areas of the world, wouldn't you? You will make sure your money is not in US or EU and sell stocks and bonds. You could foresee this action due to your experience in Cyprus and started a few weeks ago to bring assets out of US and EU. You need a place where the exchange rate would be stable and where the local administration will not join US and EU. You would sell your stocks and bring the capital to China.
How about Hong Kong or Shanghai? Their index increased during the last 20 days by 6,12% (Hong Kong) and 4.19% (Shanghai). That would explain the following chart:
Conclusion:
The US and EU wanted to punish the Russian establishment who were able to save their capital. In the end EU and US punish their own people. In Germany a lot of companies have business with Russia and they might get less orders in future. People will lose their jobs. In US it is the savings of Joe the plumber, the money he put into his 401k for his retirement. 3.37% loss so far in July.
A long essay about politics but where to invest the money? Go short until the things are calm again (in 10 weeks it is cold again in Germany...). Our trade system did give us a buy signal early in July for TZA, an EFT. The paper is traded at NYSE. The price increased during the last 20 days by 24.76%. Now, that's I am talking about....
But as always: just my 5 cents.....
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