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,