Short ETF portfolio up 15% last week as market crash starts

The Securities and Exchange Commission has still not come up with a full explanation for the almost 1,000 point intra-day plunge in the Dow Jones Index last Thursday, and computerized trading or a glitch is generally accepted for the worst volatility in stocks since the 1987 stock market crash.

But computers cannot be entirely to blame. Surely the system was overwhelmed by sell orders and failed. This is hardly a bullish indicator for the outlook for stocks, as all the chart support lines have been broken, nay demolished.

1929 precedent

Commentator Rick Ackerman says this looks like the ‘Babson Break’ of September 5th, 1929 when leading entrepreneur Roger Babson warned that ’sooner or later a crash is coming, and it may be terrific’, and stocks fell by three per cent on his statement. Rick thinks Bob Farrell of Merrill Lynch is Babson today with his impassioned warning on April 11th.

Perhaps ArabianMoney can throw its hat in this ring. The second edition of our investment newsletter told subscribers to buy short EFTs last weekend because the rally in stocks was over and noted ‘what has gone up by 80 per cent or more in a spike could well have an awful long way to fall’.

ArabianMoney selected a model portfolio of short ETFs. That portfolio is up 15 per cent this week. Short ETFs are designed to deliver the inverse of market performance and are often leveraged. For full details of this portfolio you can subscribe to the newsletter (click here).

Gold up

Those subscribers who bought gold after the recommendation in issue one of this newsletter are also well in the money. Gold has been performing as the ultimate safe haven in the current sell-off, at least thus far and silver has also held up while other industrial commodities and oil are sharply down.

Holding cash in US dollars, or short-dated US treasuries, is also proving a winner. The US dollar is surging on euro weakness, sterling weakness and as stock markets sell down.

But US equities look to be in for an even bigger fall this week. European efforts to calm their markets may fail again as the capacity of these politicians to deliver is called into question. Then again the UK is without a government and is threatened by a political as well as an economic crisis (click here).

Besides the rise in the US unemployment level from 9.7 to 9.9 per cent was hardly good news last week, and the recovery spin is wearing awfully thin.