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How to Bank Triple-Digit Gains During a Stock-Market Sell-Off
Monday's stock-market sell-off was a frightening affair that sunk 94% of the stocks listed on the New York Stock Exchange (NYSE). Every single stock in the Standard & Poor's 500 Index fell, and the 635-point freefall experienced by the Dow Jones Industrial Average was its sixth-largest point drop ever.
But in the face of this bloodbath, subscribers to Shah Gilani's Capital Wave Forecast were treated to gains of 456%, 455%, 371%, and 197% on four of their holdings.
Just how did Gilani manage to engineer four triple-digit gains in the face of a near-market meltdown?
He predicted reversals in both the U.S. and Chinese financial markets, employed a "put" option strategy for insurance – and then watched as his predictions came true.
"If I'm going to buy insurance, I want the best insurance at this price," said Gilani, a retired hedge-fund manager who is also a respected expert on the global financial crisis. "Part of a good cost-structure analysis is timing, which is tough. So I polished my crystal ball and said: ‘If something bad were to happen, when would that be?' I decided August, and chose some lesser-expensive puts."
Gilani's plan paid off with these four winners:
- A 455.56% gain from Goldman Sachs October 2011 $85 Puts (GS111022P00085000), bought June 3 for 45 cents and sold Aug. 9 for $2.50.
- A 455.24% gain from SPY August 2011 $115 Puts (SPY110820P00115000), bought for $1.05 on June 10 and sold Aug. 8 for $5.83.
- A 371.26% gain from FXI $40 August 2011 Puts (FXI110820P00040000), bought May 10 for 87 cents and sold Aug. 8 at $4.10.
- And a 196.72% gain from QQQ August 2011 $50 Puts (QQQ110820P00050000), bought June 10 for 61 cents, and sold Aug. 8 for $1.81.
"The days of putting together a portfolio and sleeping on it are over," said Gilani. "You could wake up to its value cut in half. Vigilance is the order of the day."
Hot Stocks: Star-Crossed Sony Corp. (NYSE ADR: SNE) Will Continue to be Bad Luck for Investors
What else can go wrong for Sony Corp. (NYSE ADR: SNE)?
After years of struggling to invigorate its turnaround strategy, Sony got slammed with Japan's March 11 earthquake and a devastating hacker attack on its PlayStation network in April.
The quake forced Sony to take tax credit provisions in its March quarter that resulted in a $3.2 billion loss for its 2011 fiscal year – the once-dominant consumer electronics company's third consecutive annual loss.
Investors have grown increasing disenchanted with Sony, sending the stock down about 30% this year. It has made several new 52-week lows in the past few months, most recently touching $24.21 on June 24. In 2008, the stock was trading at more than $50 a share.
"Sony said this was going to be its year but it looks like it then got a smack in the eye," saidShiro Mikoshiba, an analyst at Nomura Holdings Inc. (NYSE ADR: NMR) in Tokyo.
Sony said last month that the combination of the March 11 disasters and the hacker attack would erase $2 billion from its operating profit in the current fiscal year, though it still forecast a net profit of just under $1 billion.
Hot Stocks: Toyota Motor Corp. (NYSE: TM) Won't Be Back on Track Any Time Soon
Don't count on Toyota Motor Corp. (NYSE ADR: TM) to regain its place as the leader in global auto sales any time soon.
Because even though the company is ahead of schedule as it looks to bounce back from the horrible wave of disasters that engulfed Japan in the spring, it now faces another roadblock in the strengthening yen.
Indeed, the good news for Toyota is that it now expects full production in Japan to resume by September, two months earlier than originally predicted. But the bad news for the company is that the dollar has slid from over 90 yen a year ago to about 80 yen now, making all Japanese exports increasingly expensive. The break-even point for Toyota is around 85 yen to the dollar.
For every yen of appreciation, Toyota would need to raise the price of its autos in the United States by 1.25% to maintain the same profit, an unappealing alternative in a challenging economy.
Insurance Companies Likely to Survive – And Even Prosper – Following Japan's Earthquake
With estimates for insured losses from Japan's March 11 earthquake ranging from $12 billion to $35 billion, many investors have lost faith in reinsurance companies that have exposure to the stricken island nation.
But despite having to make some significant payouts, reinsurers ultimately may prosper from the disaster.
"Reinsurers typically benefit from a major disaster that's big enough to affect prices but not big enough to kill the industry," Karl Huber, a fund manager at Pioneer Investments in Munich, told Bloomberg Business Week. "That's the business of reinsurance."
Japan Disaster Update: Crisis Investing Strategies From Money Morning's Top Experts
[Editor's Note: In this special report, Money Morning provides readers with a succinct summary of the latest developments in the Japan disaster and also offers crisis investing strategies crafted by our top experts. Our goal: To give you the information you need to make informed financial decisions as the Japan disaster unfolds.]
The Group of Seven (G-7) nations today (Friday) joined together to sell Japanese yen, a currency-weakening intervention move that's aimed at helping Japan deal with the after-effects of last week's earthquake and tsunami, and a nuclear power plant problem that could end up as one of the worst ecological disasters in history.
Japanese authorities apparently requested the assistance, according to a statement issued by the G-7 after a morning conference call between members.
The G-7 said that "in response to recent movements in the exchange rate of the yen associated with the tragic events in Japan, and at the request of the Japanese authorities, the authorities of the U.S., the U.K., Canada and the European Central Bank will join with Japan, on March 18, in concerted intervention in exchange markets."
Disaster in Japan: How Bad Will it Get?
[Editor's Note: Money Morning continues to bring you the latest and best investment-related news-and-analysis coverage of the disaster in Japan. In this report, Money Morning columnist Keith Fitz-Gerald - a best-selling author and acknowledged Asia expert - answers key questions about the situation in that Pacific Rim heavyweight. For a related story - how a contrarian investor rates Japan as a "Buy," please click here.]
Money Morning Chief Investment Strategist Keith Fitz-Gerald has spent almost every summer for the past two decades at his family home in Kyoto – which is why he knows Japan in a way that few other U.S. traders could ever hope to.
As part of Money Morning's continued coverage of the disaster in Japan, Fitz-Gerald is sharing those insights with readers. Here are the highlights of a question-and-answer session we held with Fitz-Gerald late yesterday ( Thursday).
For this global-investing guru’s assessment of Japan, please click here.
Japan Update: How to Proceed in the Wake of Japan's Tragedy
[Editor's Note: In this special report, Money Morning provides a quick update on the disaster in Japan and then provides readers with free access to the investing reports and news analysis we've been providing since Friday. Our goal: To show you how to invest in the wake of the Japan disaster.]
Japan's earthquake-ignited nuclear crisis has gone from bad to worse.
Radiation levels at the Fukushima Daiichi nuclear plant rose today (Thursday) as attempts to cool the stricken reactor with high-pressure hoses failed. The No. 3 reactor's spent fuel rod pool is overheating and could release dangerous amounts of radiation into the atmosphere.
Sadly, the nation's death toll already has climbed above 5,300, with many more missing or in danger. And analysts now estimate that the direct monetary costs from Friday's 9.0 magnitude earthquake and tsunami will range from $160billion to $200billion.
Indeed, the early reports forecast that the disaster could trim the output of Japan's $5.39 trillion economy by half a percentage point – which would add another $25 billion to that tab.
Special Report: How to Invest in the Wake of the Japan Disaster
[Editor's Note: In this special report, Money Morning provides a quick update on the disaster in Japan and then provides readers with free access to the investing reports and news analysis we've been providing since Friday. Our goal: To show you how to invest in the wake of the Japan disaster.]
Japan's earthquake-ignited nuclear crisis got even worse early today (Wednesday), igniting major losses in stock markets around the world as analysts came to terms with both the spiraling costs of the disaster and the spinoff effects that continue to surface. The official death toll approached 4,200, with thousands more still missing, NHK World/Radio Japan International [...]
Japan's Stock Market Plunges as Export Disruption Threatens Global Supply Chain
Japan's stock market fell the most in two years yesterday (Monday) in the aftermath of Friday's devastating earthquake, the biggest in Japanese history. Rolling blackouts and factory damage threatened exports for some of the country's biggest companies, many of which play a key role in industries' global supply chain.
The Nikkei 225 stock index closed down 6.2% yesterday at 9,620.49, after falling 1.7% Friday.
"The market is pricing in a better understanding of the enormity and complexity of the two natural disasters that struck Japan," Mohamed El-Erian, chief executive officer at Pacific Investment Management Co., told Bloomberg News. "The immediate impact will be felt through lower global aggregate demand, disrupted supply chains and funds flows into Japan."
Economic Aftershocks of the Japan Earthquake
The 8.9 magnitude earthquake and resulting tsunami that hit northeastern Japan today (Friday) had an immediate impact on financial markets all over the world. However, the effects of the damage and rebuilding will reverberate through the Japanese economy for months, if not years.
In the immediate aftermath of the earthquake, which struck in midafternoon, factories shut down, railways stopped running and roads, ports and airports closed. Markets remained open, but a lack of power and a disruption of the mobile networks curtailed trading after the temblor struck.
Some of Japan's biggest companies were affected:
- Nissan Motor Co., Ltd. (PINK: NSANY) halted production at four factories in the area hit.
- Toyota Motor Corporation (NYSE ADR: TM) closed two assembly plants and a parts factory.
- And Sony Corporation (NYSE ADR: SNE) closed six factories.
"This is certainly the worst thing that can happen in Japan at the worst time," economist Nouriel Roubini told BloombergTelevision, noting that Japan's deficit is 10% of its gross domestic product (GDP) and repairing the damage from the quake will cost the country tens of billions, if not hundreds of billions of dollars.
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