By: Chris Rowe — May 20, 2017
Brazil Crash Creates Massive Opportunity
This is Bill Spencer, the Editor in Chief at True Market Insider.
By now you likely know that, on Thursday, Brazil's stock market got smashed over the head. The type of market volatility we're now seeing in the region tends to create fortunes for investors.
Here's what's going on... (Click any image to enlarge it.)
The popular ETF representing Brazil's market, iShares MSCI Brazil Capped ETF (Symbol: EWZ) saw a one-day decline of 16.32%, from Wednesday's close to Thursday's close.
The two-day decline, from intraday high-to-low, was a staggering 21.45%.
NOBODY is recommending buying Brazil. But the world's wealthiest investors don't sit around recommending things. They're busy trading so much stock that they're moving the entire market, while the pundits do what they're paid to do - create hype and buzz.
At the time of this writing (Friday at 3:30pm eastern) the index is up 6.75% on the day.
You might think it's too late to buy the bargains, or to sidestep the trap doors but that's what investors always think when caught up in the hype. (That's how they're conditioned to think.)
Everything feels like it will happen "right now" or "never again." But savvy investors understand the "gradual dissemination of information" effect in financial markets.
That's the counter argument to "efficient market hypothesis" (EMH), which states that all known information is immediately reflected in the price of the securities affected in the publicly traded financial markets.
The technical term to describe our feeling on EMH is: "that's bull crap".
GRADUAL DISSEMINATION OF INFORMATION
The idea behind GDI is that information can take a long time to make its way through markets. And at the same time its filtering through... it's also evolving. The same bit of information can be interpreted in many ways by different parties, or even the same investor, as the information is digested. There is lots of misunderstanding of the information, causing gyrations in prices. There's aggressive investors who get in without waiting for information to be confirmed... and vise versa.
But most importantly, there are the "800 pound gorilla" investors. These are the guys who manage hundreds of billions of dollars. They're unable to deploy enough of their investment capital into a position in a short time frame. If they tried to do that, they'd push the price outside of their own target price range!
So in order to take a "significant" position without pushing prices higher, they spend months trying to buy or sell. In the interim, the story evolves and their target exposure changes.
People thought the "Greek Debt" crisis was going to be a flash in the pan, until it evolved into the sovereign debt crisis. Contagion spread across the globe.
But what about simpler positive examples?
A few days before the U.S. presidential election, the world seemed to be convinced the stock market was going to continue tanking. Prices were in decline and the same folks on financial television, who were kicking themselves for not buying earlier in the year, looked the gift horse in the mouth when prices finally retreated to reasonable levels.
On the second of November, Chris Rowe wrote an article titled "Make Your Portfolio Great Again", where he urged investors to take advantage of the dip instead of shaking in their boots. If you can't bring yourself to buy something when the world hates it... then you'll never buy a bargain.
What about the other "dip" in early 2016?
Chris Rowe wrote an article on February 1, 2016 titled "Most Bullish Signal in 30 Years?"
The title says it all. By focusing on The True Market, he saw a major bottom before most of the world felt safe enough to step in. Uneducated investors would chalk this up to having big brass... um... guts.
But he wasn't some overly confident gun slinger winging a shot, or catching the proverbial "falling dagger". This was a well calculated market stance based on market history, math and some little-understood market physics.
And that brings us t toady's main feature.
WHAT'S UP WITH BRAZIL?
It's simple. There’s a political crisis returning to Brazil…
But the Brazilian market has been the strongest stock market on earth all throughout this scandal.
When big news hits the financial markets, big opportunities are created. This is because stock prices usually don't reflect the current economy, but instead reflect the future economy. Big news hits prices in the short term, but investors forget that long term price trends reflect a lot more information than just the latest headlines.
A major Brazilian newspaper reported that the current president Brazil had been caught on tape discussing bribe payments that were to silence the former speaker of Brazil's lower house. The former speaker had helped orchestrate the previous president's impeachment. The former speaker currently sits in jail for bribery charges, but is said to have been put behind bars for leading the impeachment of the former president.
Where is all this headed? Time will tell.
In any case, keep your eye on Thursday's True Market Insider. We should have more on this fast-moving situation.
Editor in Chief, True Market Insider