I would not normally send this email to BAMinvestor subscribers but since you all are helping us with the Beta I thought I’d provide a “heads up.”
I track many indexes around the world and that allows me to help clients avoid the pitfalls of what some modern day portfolio managers are espousing as “diversification.”
The BAM model is telling me that foreign market stock participation is NOT a good method for achieving diversification. China, in particular, looks like it will track the US stock market lower over the coming months and the BAM Model is warning me that it might even crash.
I track the FXI for my hedge fund clients (the FXI is an exchange traded fund that mimics stock index exposure to China) and that model is currently very bearish. In fact, I just issued a “crash alert” for China Indexes and that alert will remain in effect into the first week of September.
Complacency is running high (people are too bullish or at least not at all concerned about any meaningful decline this summer) and that places the market in a very dangerous condition.
Hedge funds are driving price action in the markets these days and because they’re forced to perform week in and week out, they have to be considered “fast money” or “hot money” meaning that they’ll move into and out of positions very quickly and in large size (volume). What that means to you as individual investors, is that you should expect large, violent price swings and that you should avoid a “buy and hold” strategy for the remainder of this year.
I suspect that the government will, at some point in the future, change the rules and sideline the hot money, but for the time being we have to understand the new dynamic and play by their rules if we want to survive and profit. In fact, my advice to anyone not interested in actively managing their money is to sit on the sidelines until 2016.
If, on the other hand, you’re interested in taking advantage of what I think will prove to be the greatest profit opportunity of a lifetime, feel free to ask questions while you watch the BAM model perform over the coming months.
Full report coming soon