If the tumultuous global markets have you down, you're in good company and not all the Prozac or hugs in the world can lift spirits, at least according to Brian Whitmer. "You can't stop a trend in social mood," says the Elliott Wave International analyst. It's a rather distinct comment with chilling implications for Europe, given the direction of its markets and levels of discontent.
Regardless, Whitmer says investors need not sit idle while Rome burns. The analyst says U.S. investors have two clear options. Choice one is parking in US dollars, the Swiss Franc or T-bills. If and when the international markets reach Whitmer's forecast for a drop of 40%, it'll be time to get more constructive.
For the more active traders among us, Whitmer's second suggestion is taking the other side of optimism whenever it raises its cheery head. In other words, short the rips and cover on the dips. "The short side of Europe will offer the best opportunity," he says.
The unrest in the EU and elsewhere may be troubling but not unexpected. Even the bizarre European trend of replacing leaders at a moment's notice is par for the course during times of great unrest. "This is what happens every time there's a bear market; you want to throw out the incumbents and elect someone else," says Whitmer. The ghost of Herbert Hoover may find solace in this observation, but investors shouldn't; there's little reason to believe the new bosses will be any better than the old.
Despite my best efforts to cast the light of my naturally sunny disposition on the European situation, Whitmer simply can't, or won't, see a non-catastrophic outcome. For the economies of both Europe and the world, he says "the fix is to let a seven-decade bubble in credit deflate". It's a popular idea as evidenced by the way bond traders are dumping debt into markets where it can't be supported.
In a crisis investors don't care about a return on capital, merely a return of their capital; at pennies on the dollar, if need be. That's why the Greeks can't sell bonds at any price and it costs Italy 7% to sell 2 year bonds. What's happening in bonds is akin to an old-school run on the bank, only huge, global and devastating.
Beyond simply shorting Europe, Whitmer offers a specific strategy for the intrepid trader. "It's times like these, when crowd behavior is in control and markets are behaving emotionally" that smart traders rely on indicators like wave patterns, technical analysis, and Fibonacci measures. This is when they are "worth their weight in gold."
Those of you who dismiss the charts as voodoo or akin to driving while looking in the rearview mirror are welcome to stick to the fundamentals instead, but trust me, you aren't going to like what you see.
- Brian Whitmer