Get a load of this quote from a Bloomberg story today, and make sure you file it away in your brain: “We’re going into a much more tricky asset environment … The same way we’ve seen everything rally together, everything could sell off together.”
Why is this so important to understand? Because we have an “Everything Bubble” in the markets, a theme I’ve been stressing for many months now. Think about it. Usually when stocks go up, Treasuries go down. When stocks go down, Treasuries go up. That’s because government bonds are seen as a turmoil-proof investment, something to buy when lousy earnings or lousy growth drive stock prices lower.
But that hasn’t been the case in this unusual market cycle. Treasuries and stocks (not to mention other asset classes like commercial real estate, artwork, collectibles, junky bonds, tech unicorns, you name it) have largely been moving in lock step with each other. That’s because the underlying driver isn’t real fundamentals. It’s central bank funny money! And now that the supply of that funny money is drying up, look what’s happening every day: Stocks AND Treasuries AND real estate AND other assets are falling.
That’s why fund managers are holding their highest percentage of cash relative to their portfolios since 2001. It’s one of the best hedges against a world gone mad, and an Everything Bubble turning into an Everything Bust. Or if you’re more aggressive, you can do what I’m doing in my All Weather Trader service: Buying inverse ETFs, put options, and other investments that RISE in value as lousy stocks, lousy bonds, lousy real estate investments, and more FALL!
