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How to Protect and Preserve Wealth

01/07/2016 9:36 am EST


Michael Berger

President & Founder,

With global market volatility running high, Michael Berger, of, is on the sidelines with the stock market. As such, he suggests a way for investors to protect themselves and hedge current investments, plus, he offers a pair of names to consider.

The United States stock market is down more than 2% in pre-market trading after the Shanghai Composite Index plunged 7.3% before trading was suspended. Wednesday night, The People’s Bank of China cut its reference rate by 0.5% (the most since August). This move sparked a sell-off in stocks that triggered a full-day trading halt less than 30 minutes into the session.

Weakness in the global markets have helped wipe $2.5 trillion off the value of global equities in the first six days of the year and George Soros said the financial markets are facing a serious challenge which reminds him of the 2008 crisis. If this was not bad enough, the World Bank cut its global growth forecasts for this year and next as China’s weakness affects the entire world.

Expect the Fed to Delay Future Rate Hikes

Weakness in the Chinese stock market has us betting against future interest-rate hikes by the Federal Reserve. Last year, this same situation helped delay an interest rate increase from September to December.

Global market weakness continues to affect the commodities market and oil continues to feel the brunt of this. West Texas Intermediate, a benchmark for oil, was down more than 5% Thursday morning and traded as low as $32.10 a barrel, the lowest price since late 2003. We would not be surprised if we saw the price of oil breach the $30 level in the near future.

Gold, a safe-haven investment during times of economic uncertainty, has been the only beneficiary of this weakness. Gold is trading at its highest level since the first week of November, with spot prices up at $1,100.

How to Protect and Preserve Wealth in Deteriorating Markets

With global market volatility running high, we are on the sidelines with the stock market and expect things to get worse before they get better. Investors can protect themselves and hedge current investments with put options and short positions.

During 2016, the SPDR Dow Jones Industrial Average ETF (DIA) has fallen more than 4% (based off of pre-market levels) and we see further downside from current levels. Investors can profit off of this weakness by targeting high beta stocks that have not fallen too significantly and energy stocks that are highly levered to the price of oil.

Two companies we see further downside in are Chesapeake Energy Corporation (CHK) and Ultra Petroleum Corp. (UPL). We see further weakness in CHK due to balance sheet concerns and prolonged weak natural gas prices because there is too much supply in the market. Our negative view on UPL stems from the same reasons that we have on CHK. UPL is one of the most natural gas exposed stocks and they have a deteriorating balance sheet. The company may breach its maximum debt levels per its credit facility agreement and this would be a headwind for shares.

Michael Berger, Founder and President,

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