 |
The quote sure isn’t Shakespeare. But I suggest you read it nonetheless:
“Crowded short positioning across the volatilities of numerous assets worries us as we believe the next shock will likely lead to a volatility spike that is exacerbated by elevated cross-asset correlations.”
It comes from a blockbuster Bank of America Merrill Lynch research piece this week, one that could prove incredibly important to investors like you. It also dovetails nicely with the dramatic “Everything Bubble” warnings I’ve been issuing for the better part of the past several months.
So what are the analysts led by Bank of America’s Christopher Xiao saying exactly?
Namely that virtually every market on the planet is trading off the same catalyst: The search for yield driven by NIRP/ZIRP policy all over the world.
 |
| Market risks continue to grow. |
We used to see stocks rise and bonds sell off on good economic data. Volatility would flop and chop around based on actual human emotion. Currencies would trade to and fro based on expectations for relative growth and inflation prospects across economies.
But these days, everything is being driven by monetary policy — and complacency is at an extreme high. So Xiao argues (in the dry, jargony language like I shared at the outset) that the risk of a blowup out of left field — one driven by surging volatility in not just one market, but basically every market — “exposes investors to highly asymmetric risks.”
The timing is always tricky, of course. But given the massive distortions evident throughout the markets … “hidden” signs of credit stress behind the scenes … and the warnings coming from some of the richest, most legendary investors of all time, conservatism seems like a wise investment approach here. And that’s exactly what you’ll find in my Safe Money Report, which you can learn more about here.
Finally, I couldn’t think of a more important time for us to speak face to face. So don’t forget the two upcoming opportunities you have to get together and talk markets with me:
- The MoneyShow Toronto, September 16-17: You can register online by clicking here. Or just call 800-970-4355 and mention priority code “041484.”
- The New Orleans Investment Conference, October 26-29: Online registration and more details can be found by clicking here. Or call my staff at 800-648-8411, and mention Money and Markets and/or Safe Money Report.
Until next time,
Mike Larson
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
{ 14 comments }
Yes we are truly entering the world of Gordon Gekko.
Squelch innovation through government regulation, squelch competitiveness through welfare, establish a media of lapdogs spewing its venom of lies and deceit, and wham-o, capitalism (a coined phrase by Stalin or Marx), the linchpin of liberty and freedom, dead!
Capitalism has been dead for a long time. It was killed the minute the Wall Street got in bed with Washington .
The word capitalism was introduced by William Makepeace Thackeray circa 1853. Also, I doubt that Jefferson and Madison would share your views equating capitalism with liberty and freedom.
The surface tension that exists between the issues noted in your article, and the pouring in of money from all over the world seeking income/safety in the US markets is what’s keeping the markets, and monetary systems from blowing a gasket.
That surface tension will eventually give way, and one side of the tension barrier will overcome the other side, and my hunch is that the issues noted in your article will take over. The question that needs to be asked now is “where will money go in pursuit of income /safefy” when all hell breaks loose. My second hunch is that there will be “nowhere” to go at that point. For those not already situated in advance, it will be too late to move. Thus, for those people (most likely the majority of investors) staying put in cash, or even your long term investment will be the sanest thing to do. There will be massive opportunities down the road a bit, but there will be a period of instability and over the top risk that most cannot afford to get mixed up in.
Even though I’m now retired, I will wait until there is at least a nominal level of clarity in the market. Should normalcy not return, or the new normal becomes unacceptable to me as an income investor, I will move into alternative investments; possibly income real estate. My perspective on the markets is driven by where I am in my life, and where the last eight years of income investment destruction has led me.
That’s what I like about non-traded markets. Not that they will be completely immune from the mess but much of the volatility will be held off IMO.
I heard a presentation from Jim Rickards about the advent of a World Currency. This is supposed to be introduced on September 30, 2016. Richards says the US dollar will no longer be the currency of choice for pricing commodities, etc. Has anyone heard about this upcoming event?
It seems to be on a yearly replay actually. There is probably a push for this from the nwo people but there are other forces at work as well. A tug of war with the 99.9 as the mud.
Please tell us what has become of your recommendation – SRS ?
If the Fed starts moving yields up toward then old normal range, they will induce a powerful recession. If they don’t move yields up, they will induce a crash that would make 1929, and afterward, look like boom times. The Dollar also needs to be backed with gold to something like 25%, at least. China knows this, and is preparing to do something of the sort with the Yuan, which will make that country the leader of the world’s economy. Other governments have taken note, and are buying gold to give their currencies some gold backing also.
I remain suspicious that once the Fed begins to normalize interest rates, all that idle money in the banking reserves will start to ‘work’ again and the multiplier effect will ramp up. The result will be more inflation than the Fed planned. I’m also suspicious that derivatives will play an unexpected roll as well. The Gordon Gekko’s will rule the day, the rest of us will be along for the ride – including the central banks and legislators.
Looks like the Fed will raise rates, this will give room to Europe and Japan to ease out of NIRP. Hoping to see September increase and another 6 months later. Fed needs to maintain a rate differential with Europe and Japan so USD maintains market share when Yuan is included in IMF basket.
Mike – Nice !
Human Emotions are generally transient they generally come and go like the weather.