Positioning for “Swan-Type” Disasters

Positioning for “Swan-Type” Disasters

Recently, the US, China and portions of SE Asia have been hit by massive hurricanes and cyclones. As investors, it is often difficult to understand the mechanics of how these types of disasters result in opportunities while thousands are attempting to rebuild and survive. Yet, as investors, it is our job to prepare for these outcomes and attempt to foresee risk and opportunities.

 

Over the weekend, we expecting Hurricane Irma to hit Florida and most of the South US, one should be asking the question, “How will this drive the markets over the next few weeks/months?”. Let’s explore this question with some hard data and analysis.

 

US Population Density

The population in the South Eastern US is rather dense. There are also a number of key economic locations that could be disrupted if the storms starts to drift eastward.

US_Population

 

Economic Output by Region

percapita_gdp_2012

Consider that the South Eastern US represents a minimum of 1.6~2.2% annual GDP output.

gsp_0615

When one considers the amount of destruction, disruption and economic decline that could be the immediate result of disasters such as hurricanes, one has to think about how the global markets will react to this level and type of event?

 

In comparison to the other geographic regions of the US, the South Eastern portion of the US still represents a substantially large portion of annual economic output/activity.

 

us-economy-by-state-flag-be95

 
A massive disruption as well as asset revaluation event could cause a “blip” in the US GDP representing at least 2~3 tenths of a percent and could result in hundreds of billions in actual losses, economic output losses and infrastructure destruction.

 

Because of this, and other potential future events, we are concerned that the US markets may be headed for a correction event or bear market event in the near future. In the past, we have attempted to illustrate this potential by highlighting cycle events, key market breakouts and trends and, most recently, highlighted the 3-7-10 year cycle structures that play out in all markets. Now, we are setting up for an event that may unfold over the next 30~90 days as a “swan type event” that few are preparing for.

 

The US Dollar continues to slide. Our analysis showed that $92 was key support. Recently this level has been broken and we are concerned that the US Dollar may continue to slide lower. Overall, in terms of global competition, this may not be a tremendous hit. But in terms of purchasing power and the existing dominance of the US Dollar for trade, we could see some pressure in other areas.

 

USDollar_Weekly_F

 
In relation, our custom China/SE Asia Index is pushing toward the upward range of our price channel and could rotate lower on a Swan-type event (like a debt issue or political issue).

 

ChinaCustomIndex_W_F
Oil is breaking downward as these global events and the transition to slower consumption continues to drive supply higher and higher. We could continue to see Oil based “Mini-Swan Events” in countries that are dependent on Oil prices and income to support their economies.

 

XOI_Weekly_F
US Banking and Insurance firms are sure to take increased risks with these types of events. As borrowers are displaced because of a “Swan-type Event” and refocus on immediate needs/issues, delinquencies in mortgages, auto loans, credit cards and others will spike (quickly). This becomes a matter of survival (much like after the 2009 Credit Market Crisis) where people made choices to support immediate needs and not long-term credit needs.

 

BankingIndex_W_F
Metals, of course, have already started to make a move higher because of the risk of these events and global risks. Although, we still believe a short-term move lower (almost like a relief move) will play out over the next few weeks that will be the opportunity we have been waiting for. This move will allow investors to position metals trades for the potential longer-term Swan event outcomes.

 

MetalsCustomIndex_W_F
Lastly, our US Custom Index is continuing to provide a much clearer and defined picture of the Head-n-Shoulders formation that has us fixated on the potential of our VIX Spike dates, major cycle events, key rotations and, now, these potentially massive “Swan-type events” to correlate into almost a Super-Swan Event. These hurricanes are passing events – they go away eventually. An economic event is something that takes much longer to resolve and restore. Much like the 2009 Credit Market Crisis, the results of a Swan-type event can be long lasting and can result in massive asset revaluation.

 

We’re not saying the global markets are going to fall into another 2009 type event, but we are saying that our analysis is showing that “some type of event is setting up and IF it turned into a Super-Swan event, then YOU (the investor) need to be aware of this potential”. If it simply turns into a correction or minor downturn, then you still need to be aware of this potential so you can profit from it – either way.

 

US_CustomIndex_W_F
What will it take to setup and execute a series of trades that help protect against this type of possible Swan Event?

 

Join ActiveTradingPartners.com today to learn more and follow our daily research reports to assist you in preparing for just this type of event. There is not a lot of time left before these potential events begin to play out. ATP will assist you by finding great trading opportunities and keeping you informed of the markets setups and potential moves/cycles.

 

Are you ready for the next Super-Swan Event? If not, join http://www.ActiveTradingPartners.com today.

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