Fear of Ebola 101814

How quickly markets fall I think. Yet if I look at a chart of EWG (Germany) the exit signal occurred back in 6/14 or if I look at EWC (Canada) the exit signal occurred in 9/14. Because I am biased towards US markets, I look at SPY and that was the last to show weakness (exception being IIF the India fund). This time it was a multitude of reasons but the one standing in front of 95% of Americans is the fear of Ebola virus. Just last month I took my regular once a year flu shot knowing that it covers a majority of flu issues but not the grand master of all, the ebola virus. I was curious to read what my classmates posted on Nassim Taleb of “Black Swan” fame about Ebola. After reading this article I felt his opinion was quite sound.

http://www.businessinsider.in/Nassim-Taleb-Heres-What-People-Dont-Understand-About-Ebola/articleshow/44864143.cms

Ebola is a multiplicative virus. The growth rate is certainly non-linear. The number of people catching it doubles every 20 days. The key to controlling it is at the beginning and at the source. Travel bans may seem excessive but travel bans in the 3 affected areas is more important than trying to close borders – we know we are not effective at border control anyway. Reminds me of the old movie “Outbreak” I think… building a dome around the contagion? This all sounds crazy and rarely do our politicians agree on anything other than that which helps them all get elected. I expect we will see both parties calling for travel bans. And do we prevent Texas folks from traveling to the rest of the US? After all the nurse that stepped on the Frontier plane risked spreading the disease all around the country?

My cab driver from the airport last week has his home in Sierra Leone, West Africa. He is 69 years old, has been driving a cab for 15 years and will keep working for another 2 years till his oldest son can complete his Dentistry schooling….. He worries about his family in Sierra Leone. He says that all schools are closed. Taleb is right. See article in Forbes on the devastating effect on its economy...

http://www.forbes.com/sites/mfonobongnsehe/2014/10/16/ebolas-impact-on-sierra-leones-once-flourishing-business-sector/

We need to take the fight to Africa. I think the real heroes are the Doctors and social workers and organizations who are sending medical supplies to Africa and some with the incredible courage to go to Africa to help. I include as heroes the Doctors and Nurses in the US who stepped up to the front line in this fight.

The markets have shown a significant increase in volatility as we well know. I have been on the side lines and was considering dipping my toes back as I think we have seen a reversal but work and travel has kept me busy. I will most likely add to my negative stance when the market bounces a little more, as I expect a retest of the lows or another leg down. Overall the drop in oil prices have been catastrophic for “oil” countries such as Russia, Saudi Arabia, Canada etc. Question is will the US economy hold up and keep the rest of the World stable or the other way around…no one really knows.

Gasoline $2.99 per Gallon!! 10/11/14

Last week when I was in St. Paul Minnesota I saw gas at $2.99/Gallon – first time I had seen it less than $3/gal in a long, long time. I recall during the last presidential elections (primaries?) one candidate promising to make gasoline below $3/gal. Guess he did without getting elected!! The drop in price has been very steep. See charts below on the price of Crude Oil on NYMEX and also the ETF (exchange traded fund) OIH that can be traded. I love it when the gas fill up on my Prius is only $24 and I can drive $375 miles before seeing a gas station again.

Last week I was wondering if the prices on plastics commodities had also seen similar drops. Probably not, as material suppliers hold on to the high pricing as long as they can to maximize their profits while molders and converters are slow to take advantage of the huge drop in crude.

Why is gas going down so quickly? The first reason has to be the strengthening dollar at the prospect of rising interest rates. That may not yet happen as the Feds are concerned that a rising interest rate in the US may cause a slowing down here with an already slow Europe resulting in a global slowdown and more serious problems.

Second obvious reason is a weakening in demand. That is more troublesome. Europe is already in a slump. Look at your international funds like VEU that have been taking a nose dive… dropping oil prices is going to hurt Mr. Putin even more than us and cause a full fledged recession in Russia as his oil revenues drop while he keeps putting money into his military machine. The Saudis I hear are not planning on reducing oil supply this time and the US is also turning it on.

Eventually oil will find a bottom. Is it here now? I see high volumes trading on OIH and a precipitous drop in price which may signal a short term bottom but I am not one to go in front of a falling knife. Let it find its footing, stabilize and make some moves up before I will put my toe in.

Meanwhile I just filled up my car at $2.95/gal in South Carolina this weekend…

401K Monthly Funds Analysis – 10/4/14

Time for me to do my monthly funds analysis. The S&P 500 index (SPY) has turned down so I am mostly out of my 401K funds with the exception of a small portion in Lazard Emerging Markets and that has turned Southwards in a hurry. I am still in it due to fidelity’s rule about being in a fund 30 days. Of course I am down in that fund more than the 1 to 2 % fees redemption fees they charge for getting out quickly, not to mention all the threats about stopping you fund trading (investing). I have purchased PUT OPTIONS ON QQQ to offset any losses on emerging markets but Lazard fund has been on a sharp decline and is not well correlated to QQQ.

In my current employer’s funds the top choices for this month are FID Puritan, S&P Spartan 500 Index ADV and NB MDCP GRTH Trust.  International funds have been taking hard hit. See chart on Fidelity Div Intl. Royce Opportunities is sitting as the worst performer of all our funds.

In my previous employer’s funds, top choices are Fidelity Contra funds, Fidelity Growth and Domini Social EQ and Artisan MidCap Val Instl.

Fidelity Government income has started doing much better, a sign of things to come?