Risk Management 02 (Aug 15 - Dec 25)

[winston]

Why Your Brokerage Account Isn't as Safe as You Think It Is By E.B. Tucker

Imagine logging into your brokerage account tomorrow and finding out that it's frozen.

Not just your account… every customer account at your brokerage is frozen.

You can't buy stocks. You can't sell stocks. You can't move money out of the account.

Your account representative insists the money is still there. It's just not available now. He doesn't know when it will be.

When you demand to transfer $25,000 in cash out of the account, he says, "I'm sorry… the system won't let me."

You ask to speak to his boss. She can't help, either.

This situation sounds absurd to most Americans. There's no way a major broker could freeze your accounts, right?

Wrong. It happened in 2011 to 38,000 people…

And this wasn't some no-name broker. It was a highly respected, 228-year-old firm. And Jon Corzine ran it. At one point or another, Corzine was a U.S. senator, the governor of New Jersey, and the CEO of Goldman Sachs. Then, he became the CEO of MF Global.

MF Global handled stock and bond trading for some of Wall Street's wealthiest clients.

It was also one of only 18 "primary dealers" at the time. Primary dealers are a select group of brokers allowed to participate in the U.S. Treasury auction. Citigroup, Morgan Stanley, and Goldman Sachs are also primary dealers.

Like all U.S. brokers, MF Global was required to keep customers' cash and stocks separate from its own corporate accounts. This rule is supposed to keep brokers from playing with customers' money. But the rule only works if brokers follow it.

In October 2011, account holders at MF Global started having problems withdrawing cash and transferring stocks. It turned out that their money wasn't there. MF Global had made a series of bad bets in European bonds and illegally transferred $891 million in customer funds to cover its trading losses.

Their cash was gone…

Customers had to hire and pay for their own attorneys. For a while, it looked like they'd never get their money back. But in December 2014, MF Global finally agreed to return $1.212 billion to its former clients. It also paid a $100 million fine.

You might be wondering how this sort of thing could happen…

First off, you are not the legal or registered owner of the stocks in your brokerage account. You're just the "beneficial owner."

Sure, you put the cash in your account. You logged in and "bought" Apple, General Electric, Verizon, and other stocks issued by sound companies. You did your homework because you worked hard for your money. Those investments are a key part of your retirement plans. You don't make risky moves.

And you work with a reputable broker. But your broker or a clearinghouse called Cede and Company is likely the registered owner of "your" stocks.

Here's how it works…

There are three basic ways to hold stocks:
1. street name registration,
2. direct registration, and
3. physical certificate.

Street name is the default. Unless you make special arrangements, this is how stocks are registered.

Cede and Company, a subsidiary of The Depository Trust Company (DTC), is likely the registered owner of your stocks. You are not the registered owner. When you buy a stock, DTC holds those shares for your broker. Your broker, in turn, holds those shares for you.

That means Apple, General Electric, Verizon, and the other companies in which you hold stocks have no record of you.

If your broker mishandles your account, you can sue to get your money back. But, as MF Global customers discovered, it's not easy. And there's no guarantee you'll win…

If your broker makes a bad bet on Greece and uses your cash to settle the bill, you're out of luck. Sure, it's illegal… but laws didn't stop MF Global. Customers had to take action, hire lawyers, and sue to get their cash back.

Stable markets hide problems. In 2008, we saw that big problems can go unnoticed for years. A crisis reveals who's stable and who's just pretending to be. Some brokers and financial institutions are heavily leveraged. They're especially vulnerable in a crisis. Some will not survive the next one.

The MF Global fiasco is one of the most important financial stories of the past decade. It showed that the financial system isn't as safe as you think it is. Even big, brand-name banks and brokerages with years of success can instantly go broke.

The next financial crisis will bring many more shams like MF Global's to light.
You can protect yourself by keeping plenty of cash and gold in a safe place… but not in a safe-deposit box.

And make sure to diversify across financial institutions. You don't want to get stuck in a situation like MF Global's customers did… waiting years for your money because some executive gambled away the company.


Source: The Casey Report

[winston]

Take These Steps Before the Next Crisis

There are a few significant steps you can take to at least minimize your possible risk exposure in the next crisis.

Here are three things you need to do:

1) Own and invest in hard assets like gold, silver, energy, and real estate. You can buy physical precious metals, buy physically backed ETFs, own quality resource equities, as well as your own home, income-producing properties, and land.

2) Hold assets internationally. This is largely the same as above, but in another country. Consider opening a foreign bank account. It's not easy for Americans, thanks to the Foreign Account Tax Compliance Act (FATCA). But holding something outside your country of residence makes it vastly tougher for a desperate government to grab.

3) Hold plenty of cash. "Cash is king," despite the risks of inflation. Hold it as bank balance, but watch FDIC deposit insurance limits, and consider diversifying into other currencies. Be sure, however, to hold some physical cash as well, as this could be crucial during a "bank holiday."

The next crisis is a matter of when, not if.

It's time to ensure your financial survival kit is fully stocked.

Source: Money Morning

[winston]

The 3 Best ETFs to Tackle Market Volatility

As the bull vs. bear battle heats up, the whims of a volatile market can be guarded against with these three ETFs

By Kent Thune

Source: Investor Place

http://investorplace.com/2015/08/best-v ... dMtttIirIU

[winston]

5 ways to avoid risks that we already know but dont do it:

1. Global diversification
2. Asset Class diversification
3. Diversity of industry & company exposure
4. Currency hedging
5. Tactical asset allocation

[winston]

How Are You OK With That? By Dr. Steve Sjuggerud

"So… aren't you worried about this morning's selloff in stocks?" my wife asked.

"I think this morning was the bottom," I told her… "It felt like panic selling. I think prices will go up from here – at least, they've gone up every time we've seen a similar situation in the past."

"Didn't you tell me that you're probably going to stop out of a lot of positions at the end of today?" she said.

"Yes."

"And you think the market's going to go up, right?"

"Yes."

"Let me get this straight… You think the market is going up, and yet you're selling…"

"Yes, that's right."

"Hmm… How are you OK with that?" she asked.

I understand what she's saying… How can I be selling if I think the market is going up?

There are two ideas at work here, and one is much more important than the other.

The first idea here is risk control. The second idea is simply my (somewhat) educated guess.

Controlling your risk – setting your point of "maximum pain" and sticking to it – is critical not only to making big profits, but also to simply "living to fight another day" in the markets.

This idea is far more important than my guess about where the markets are going.

Controlling your risk is also extremely difficult to put into action. The thing is, you have to do it. You can't risk seeing your retirement go down with the ship.

It's irrelevant whether you're locking in a big gain or taking a loss… The key thing is GETTING OUT – controlling your risk – when the time comes.

I remember stopping out of most of my stocks in April 2000. The Nasdaq Index had peaked at more than 5,000 in March… And I stopped out of most of my stocks just a month later. It sure is a good thing I did… The Nasdaq Index had lost nearly 80% of its value by the time it hit bottom a little more than two years later.

I couldn't have known at the time that the market was just starting an 80% fall… What I did know was that I was protecting my wealth. I was controlling my risk. I was living to fight another day. Boy, am I glad I followed my stops then!

Fast forward to today… Yes, I think the market could go higher from here… and yes, I'm following my trailing stops and selling some positions.

At first that might sound contradictory, or even a bit strange… But it's crystal clear in my head:

Controlling my risk trumps whatever my opinion is about the markets. Plain and simple. And it always will.

Source: Daily Wealth

[winston]

3 Best ETFs to Fight a Fraidy-Cat Market

Volatility is rampant, and so is fear. Here are a few ways to try to fend off a wild market.

By Aaron Levitt

Source: Investor Place

http://investorplace.com/2015/08/best-e ... eELhNIirIU

[winston]

Don't Be the Cowboy By Dr. Steve Sjuggerud

Last week, stocks were more volatile than we've seen in years…

In my True Wealth newsletter, we hit several stop losses. And while many folks don't like stopping out, I don't view it as a bad thing.

I believe this is a major teaching moment…

I'd like to teach you with a story. Please read this story closely and don't forget it…

Two out-of-work cowboys went into a bar. The sign above the bar said, "We Pay $25 for Bear Hides." The cowboys hatched a plan to get some bear hides… They rode deep into bear country the next day and set up their tents.

"Early the next morning, they heard a rumble, so one cowboy looked outside to see what it was. When he opened the tent, he saw 10,000 growling bears. He looked at all the bears… and then looked back at the other cowboy… and with a grin, said, 'WE'RE RICH!'"

The cowboy – blinded by greed – didn't see the risks in front of him that were (literally) staring him in the face.

(This story is from Ned Davis' book Being Right or Making Money, 2014 edition. Ned Davis is one of my investing heroes. You can learn more about him at www.NDR.com.)

This is the big difference between amateur investors and successful ones. Amateurs are only concerned about the potential rewards. Successful investors already know they are going to make money – their only question is about RISK.

A great trade is made up of two things… A great buy AND a great sell.

We achieved this in my True Wealth newsletter with my recommendation of local Chinese A-shares. We bought AND we sold… We bought the Deutsche X-trackers Harvest China A-Shares Fund (ASHR), pocketed 100% profits on half our money, and sold the rest up 60%-plus, all in less than a year.

Now China is DOWN for 2015. It fell 9% in one day last week… Yes, one day. (It would have fallen even further, but China has a 10% daily limit on share-price movement.) You have to have a great buy AND a good sell. You have to manage your risk.

You need to be on board with this. We may need to concede some battles to win the war. That is how you make money.

You have to sell when it's time to sell.

It is extremely dangerous out there right now. We need to be more concerned about risk than reward. And we need to follow our trailing stops.

And please, don't forget the cowboy story…


Source: Daily Wealth

[winston]

Investment Strategy: It's Time To Go To DEFCON 2

At DEFCON 2, I recommend investors to:-
1. increase cash positions to 15%,
2. take all their long term gains,
3. set trailing stop loss orders on all low dividend/interest paying holdings,
4. increase their gold and silver positions to 15%,
5. buy out of the money puts on ETFs that best mirror their remaining exposed positions, and
6. weigh buying some inverse ETFs to offset value declines in their remaining equity holdings.

Given that a cave by the Fed could give us a market bounce, out of the money short-term indexed calls would also be a worthwhile speculation.

Source: Forbes

http://www.forbes.com/sites/investor/20 ... efcon-2/2/

[winston]

Doug Casey thinks a ‘Greater Depression’ is looming…

Here’s how he thinks you should prepare

http://thecrux.com/doug-casey-money-how ... d-keep-it/

[winston]

Being An Investing Survivalist

Today, that means I’m focused like a laser on the principles that have allowed me, my family, and my clients to weather every storm with a minimum of worry or loss:
1. avoid debt in all its forms
2. always know and prepare for the worst-case scenario
3. make preservation of capital Job #1
4. put the most awesome power of the financial world—compound interest—to work for you in every investment you make

Source: Young's Intelligence Report