With all of the recent geopolitical chaos in the world over the last month, ranging from half a dozen terrorist attacks in France and now Germany, to the failed major military coup in Turkey, to the stunning Brexit referendum vote for the world’s fifth largest economy the United Kingdom to leave the European Union, you may be reconsidering the value of a hedge fund to protect you against these destabilizing and financially volatile Black Swan events. If you are looking for a solid hedge fund insurance strategy without actually having to tie up a large amount of your capital for years in a hedge fund, then look no further. Two very successful hedge fund managers have just released what they agree is the best hedge fund strategy available in the markets today. Read on to learn how you can be protected against tail risk in the chaotic and increasingly volatile and dangerous global financial markets now.
Best Short Idea Hedging Strategy Now
The founder of RONIT Capital, hedge fund manager Edward Misrahi, has an idea he is passing along to you for free. This former Goldman Sachs, Inc. partner who worked in its New York-based equity proprietary trading group co-founded Eton Park, famed for being among the biggest hedge fund launches in all of financial history. Now a London-based hedge fund founder and manager, Misrahi has the pulse of British and European markets even as he mostly concentrates his efforts on the emerging markets sector.
Misrahi’s hedging idea is so simple that you do not need to commit years of your hard earned investment capital to a hedge fund to protect yourself and your money against financial instability and chaos in the markets. He appropriately calls this the best hedge insurance available today for any kind of portfolio. Misrahi revealed this idea in his recent interview on Real Vision Television with former long time global macro hedge fund manager and fellow Goldman Sachs alumnus Raoul Pal, present day author of investing newsletter the Global Macro Investor. This idea also happens to be the best short strategy at the moment, per Misrahi. Misrahi claims that the very best tail risk insurance you can get for your portfolio now is put options on the stock of Deutsche Bank. In a helpful second of the investor insurance motion, Raoul Pal agrees completely. He went a step further than Misrahi, stating that not only is the enormous international banking giant bankrupt, but that he believes the entire German bank will be nationalized sometime in the future.
This strategy involves buying put options on the Deutsche Bank stock. When the price of the stock declines, the value of the puts goes up. The leverage a put option provides is 100:1, as every contract controls 100 short shares of the stock. Misrahi is suggesting that whatever economic calamity befalls the world, Deutsche Bank is the most likely to fall as a result. The best part of such a strategy he says is that out of the money puts on Deutsche Bank are inexpensive to obtain. This is despite the fact that the stock has already collapsed over 40% so far this year.
The Idea Behind Such a Hedge Strategy
The question becomes what is the basis for this type of strategy that is supposed to protect any kind of investment portfolio today? After all, it is nearly impossible to find a one size fits all portfolios form of insurance protection anymore. If you look closely at the European continental banks, their stock prices have generally collapsed in 2016. It is not just Deutsche Bank that has suffered this calendar year. Credit Suisse is actually down even more, having free fallen over 46% so far for the year. Stock prices of Spanish banks Bankia and Banco Popular have also tanked. Italian banks are even worse, being in a state of “total messes” per both Misrahi and Pal.
In theory, most any of these banks would make excellent short candidates as insurance. For various reasons, none are so perfectly appealing as Deutsche Bank stock. Italian leaders like Prime Minister Renzi have already talked about using public funds to save the troubled Italian banks. Spanish banks which were on the verge of collapse a few years ago have already been “recapitalized” once in an EU and IMF bailout. This means that they would likely find a savior to stave off their collapse again. Germany’s Angela Merkel however continues to talk tough on regulations that forbid EU countries from using public funds to save their banks in national bailouts. Presumably this rhetoric extends to her own country’s Deutsche Bank, which alone of the massively troubled European banks looks like it will have to fail before anyone steps in to save it. Then again, if you do not like the idea of shorting the troubled German banking giant, now is also a good time for you to alternatively hedge your portfolios with long gold and silver positions.