CAN YOU MAKE MONEY WHEN MARKETS ARE FALLING?

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G20 meeting: What is the EU focused on???

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Trading During Turbulent Times

• Berlusconi’s resignation• Greece Default?• European-Union Dismantle?• European Debt Crisis• Japanese Tsunami• Lehman Brothers Crisis

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Trading During Turbulent Times

• Microsoft share after Lehman Brothers

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Trading During Turbulent Times

• This is why experts recommend – always trade using the “Market Portfolio”

• Instead of betting on a single stock – diversify your investments over all of the market’s leading stocks

This is indeed a great advise. Yet how useful is

it during turbulent times?

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Trading During Turbulent Times

• Dow Jones share after Lehman Brothers

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Who Makes Profits During Turbulent Times?

• Probably the most famous example of how to make enormous fortune during global crisis is George Soros – “the man who broke the Bank of England”.

• During 1992, just before the UK currency crisis, Soros Betted that the British pound will not join the EUR-Group, and as a result will be significantly weaker.

• He then opened large short positions on the pound.• Made about $1.1 billion during the crisis

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How to Reduce Exposure to Falling Markets?

• The main concern when participating in equity markets is the ripple effects of global/local crisis on our portfolio

• When investors flee off the market – almost all prices fall. Including assets which don’t necessarily have directlink with the crisis

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How to Reduce Exposure to Falling Markets?

»Using “short” orders

Problems:1. Not always possible2. Considered to be “Risky-Trading”3. Positive inflation targets

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How to Reduce Exposure to Falling Markets?

»Using “put” options

Problems:1. Not always possible2. Could turn up to be quite expensive3. Hedging yourself can - at best - prevent

losses. It cannot generate profits

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How to Reduce Exposure to Falling Markets?

»Shorting on Currencies

• Unlike almost any other financial instrument – there are no restrictions on shorting currencies

• Short and Long orders on currencies are basically identical

• «Shorting» the Dollar vs. Euro is exactly like «longing» the Euro vs. Dollar

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Safe-Haven Currencies

There are three currencies which are typically being referred to as «Safe-Haven» assets

• The currencies are: USD, JPY and CHF• This means that investors – worldwide – put

their faith in these economies during times of crisis

• Investing in the economy encourages speculators to long these currencies as well

• The end result is…

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Trading During Turbulent Times

• EUR/JPY following Lehman Brothers crisis

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Safe-Haven Currencies

EUR/JPY fell from 170.00 to 119.00within three months

Potential position:• Opening a short EUR/JPY position of 500,000 contracts• Requires $4,000 in margin (using 1:125 leverage)• Profit potential: $235,000• In simple words – longing the JPY against the second

most traded currency in the world offered you a 5,875% yield within three months

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What if the Crisis Takes Place in Japan Itself?

• In April 7th 2011, Japan was the victim of one of the most horrifying natural disasters in modern times

• The disaster included an earthquake and a tsunami

• Developed into nuclear crisis• About 16,000 deaths and

approximately 4,000 missing• Estimated loss to the

Japanese economy:$35 billion ($35,000,000,000)

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EUR/JPY Following Japanese Natural Disasters

EUR/JPY fell from 123.00 to 103.00 within five months

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EUR/JPY Following Japanese Natural Disasters

Potential position:• Opening a short EUR/JPY position of 500,000

contracts• Requires $4,000 in margin (using 1:125 leverage)• Profit potential: $110,000• In simple words – longing the JPY against the

second most traded currency in the world offered you a 2,750% yield within five months

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How is That Even Possible?

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And in Simple Words…

• The Japanese crisis has reduced what was already a very low risk-appetite in the market

• As a result, investors took their money and put it in what we previously called: «Safe-Haven» assets

• Speculators saw the trend and immediately stepped in – taking advantage of the crisis

• Global Crisis Stronger Yen

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Another Alternative - Gold

• One of the ancient investment in history of Mankind

• One of the most used instruments for monetary exchange

• Investors use it to hedge risksfrom Global uncertainty

• Why…?

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Another Alternative - Gold

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Another Alternative - Gold

• Till Late 2007 Gold Never Reached over $700 an ounce

• Then, investors who sensed the possible forthcoming crisis turned to gold

• They understood the potential in investing in gold for hedging risks

• The big break-though happens once again following the Lehman Brothers crisis

• Gold is boosted and reaching an all-time record high of $1,900 an ounce

• Until today, gold has more than doubled its value!

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What Makes Gold so Appealing?

• Universal Investment – isn’t valued by the strength of a single economy.

• Isn’t Consuming Dependable – demand for gold does not depend on consumption power.• “Doctor’s Orders” – psychological effect. The “book” tells us – whenever markets crashes: “turn to gold”.• Simple Conception – doesn’t involve

sophisticated investments.

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The Bottom Line

• Global crisis are terrible times.• People lose their jobs, their equity assets and

even their pension investments.• It is very important, especially for those of us

who invest their funds in equity markets, to know how to handle these hard times.

• Investing in currencies and in certain commodities has proved itself – over and over again – as the most useful tool for the common man to rescue his funds, and perhaps even to gain capital.

THANK YOU