Skip to main content

Calm before the Storm ?

Last few weeks have been pretty calm with many folks enjoying their 50% gains with summer vacations just before the school starts. It is almost exact replica of last year's August. But then dreaded Sept 08 came when the whole financial (and along with that real) world around us turned upside-down starting with Fannie/Freddie takeover and Lehman BK. I am not predicting that coming Sept would be anywhere close to last year's events but it is very likely that volatility is going to increase significantly. Currently VIX index (also called as wall street fear gauge) is hovering around 25 which is very close to its yearly low. I call it as "Calm before the Storm". Most likely it would touch 40s sometime in Sept/Oct. So how do one makes some money from this volatility ? There are few ways:
  • Just stay away from market and cash in the gains you may have made in last 5 months since not losing money is equivalent to making money:-)
  • Sell "out-of-money" covered calls for Sept/Oct so you could make some money in form of premium (when market goes down) or gains when these calls become "in-money" in case market goes up
  • But dividend paying preferred shares of companies which you know are going to survive - there is much less volatility in preferred shares and you would get your dividends in Sept/Oct
  • Buy VIX ETF (VXX) at around $58. When VIX shoots up, this ETF would gain. Be cautious about this ETF since this is not a long-term investment. When ETF reaches above $80 or so, you should cash out the gains
  • Buy dividend paying REIT such as Pennsylvania REIT (PEI). This is my stock of week recommendation at $5.80 to $6. This is REIT in retail/mall sector and has unbroken record of paying dividends for last 129 quarters. At 60 cents per year dividend, it has yield of about 10%.
So one has multiple options to face this potential upcoming storm - choose wisely depending on your risk tolerance.

Now coming to my year-end forecast for DOW - it would close above 9500 and most likely would cross 10000.

Have a good weekend !

/Shyam

Comments

Post a Comment

Popular posts from this blog

Clicks to Tokens: Will 2026 Echo 1998's Boom or 2000's Bust?

My "blogging" was in hibernation last 8 months due to my self-imposed restraint given the environment as well as built-in inertia to get started despite so many interesting events and markets reaching all time highs after taking a big dump around "Liberation Day" in Apr...Around that time I had the blog ready that it would be repeat of Mar/Apr 2020 panic and recovery during onset of Covid Pandemic. The hunch happened to be correct and I was glad that I could keep and take some positions which I am still holding especially around AI theme. But that was then...as 2025 is about to wrap up in 10+ weeks, let's look at what's in store for rest of 2025 and 2026. And what's better time than to start writing again just before one of the most important week on the calendar with multiple key events coming up next week... Fed meeting to decide the course of interest rates - it's almost guaranteed that Fed will cut rates by 25 basis points (2nd time in 2025) and...
Post a Comment
Read more

2026: The Year of Convergence – Melt-up, Moonshots, or Mid-cycle Correction?

Happy New Year! After another period of self-imposed hibernation from the blog—partly due to the festivals, travel, intertia and partly to watch the dust settle on a chaotic 2025—I decided to use the quiet of this New Year’s morning to finally reboot.  Looking back at my October post,  “Clicks to Tokens,”  the hunch about the AI theme held firm. We spent much of 2025 debating whether we were in 1998 or 2000. As we enter 2026, the answer seems to be "neither and both." We have the roaring optimism of the 1920s fueled by "Silicon Spirits," but with the high-speed volatility of the 2020s. So, as the calendar flips, what is in store for 2026? Markets may experience melt-up (S&P touching 8000),  with some moonshots (like SpaceX and OpenAI) IPOs or even see mid-cycle correction bringing down S&P to 6000. That's a wide range and will be decided by Four R's... Here are my thoughts on the " Four R’s ":  Rates, Robots, Rotations, and Real Assets. 1. ...
Post a Comment
Read more

Rockets, Relics & Roaring Markets: The $4 Trillion Crossroads of 1927 and 1999

Happy (almost) Summer! After watching Kevin Warsh get sworn in at a White House ceremony two days ago, tracking three S-1 filings that could collectively hoover up more capital than every U.S. IPO since 2022 combined, and watching 26-year-old stock charts finally break to new highs — it felt like the right moment to ask the uncomfortable question out loud. Are we at a party that ends gracefully, or one that ends with the furniture on fire? The market is simultaneously flashing the neon signs of 1999  and  the orchestral excess of 1927. Most commentators reach for the dot-com playbook. I think the original Roaring Twenties is the better map. Here's why... Assembly Lines to AI Clusters Ford's River Rouge complex was the largest industrial facility on earth in the 1920s — raw iron in one end, a Model T out the other. Steel, rubber, and oil became the picks-and-shovels of the age. GE and Westinghouse were electrifying factories and homes. The infrastructure buildout  was ...
Post a Comment
Read more