Experts Believe We are Experiencing a BubbleBy Annie Reona | Saturday, July 18th, 2015
Although some market experts believe that the market is still healthy, others believe that we are actually in a bubble which will lead to huge losses when it bursts. However, proper preparation and hedging can prevent losses and actually allow an investor to gain even in a declining market. There are some of the underlying factors that have led experts to believe that we are in a bubble which will be discussed next.
Economic Turmoil and Low Oil Prices
Some experts point to these problems as being the needle that will burst the bubble. Low oil prices make it difficult for investors within the energy market to make a profit which means they tend to shy away from continuing to invest in oil. A lack of investors then puts a strain on the market as well as the economy, particularly in the United States.
Recent developments indicate that the price of oil could drop even more, which is going to scare away even more investors, or could push investors to sell the stock they have in order to look for safer investments. In addition to the problems in the oil market, there is also the Chinese market collapse and the Greek debt crisis that are making investors even more nervous.
It is possible that if enough investors begin to sell off their stock, the markets in the United States could end up getting pushed into bear mode.
Valuations that Are Too High
Because the market has been growing for the last 6 years, stocks are trading at incredibly high valuations. In fact, stocks in the United States are valued at an estimated 17 times greater than actual earnings expectations. With valuations this high, it is likely that investors aren’t going to pay any more than what they already are because the premium is too high.
Strength of the US Dollar
Because the US dollar is so strong right now, this causes a number of problems in the market. The most prevalent problems is that exports to the United States begin to struggle with the strong US dollar which then means that the United States experiences declines in their market and earns less than expected.
Time to Abandon the Market?
Often, when investors begin to see the dangers that are occurring in the market around them, they decide to completely abandon the market because they don’t know when the bubble will burst or how much they might lose in the process. But even abandoning the market will cause a loss because getting out of the market means switching your investment from stock to the US dollar. If an investor’s money is in the US dollar and the dollar collapses, it’s just as damaging as the market collapse. However, there is a way for investors to continue to make money, even in a down market.
Idan Levitov is the Vice President of Trading at Any Option. He has spent years trading binary options and formulating strategies that will help any investor make a profit in any market. Here is what he had to say about bubble investing:
“Bubble investing is very challenging because understanding when the bubble is going to burst is very difficult, even for the seasoned professional. Intervention from Central Banks has been the driving force behind the valuation of financial assets over the past few years as they attempt to reflate the bubble. However, there are many concerns they have gone too far. The warnings are dire and the predictions unpleasant, but that does not mean a losing proposition for binary options traders. The beauty of binary options is being able to profit from increases or decreases in financial markets.”
Aside from the ability to trade directionally in the event of a bubble environment that could potentially pop, binary options affords investors the ability to hedge positions. Let’s say an investment portfolio holding the S&P 500 as a core position needed to be hedged with options. An investor could conceivably take an offsetting short position in an equivalent amount of binary options. The investor might see the value of the S&P 500 position decline, but would be able to capitalize on the gains from the binary options position. By utilizing this strategy, the investor has lost no money dispite the downside in the core S&P 500 position.”
Although the bubble in the market may be scary for investors right now, there are still options that will help investors to continue to make money even if there is a down turn in the market through smart trading of binary options. Whether experts are correct or not that we are experiencing a bubble, there are ways to hedge your investments so that investors don’t have to worry too much about losses when or if the bubble bursts.Published in News & Analysis