IT'S NOT LOVE I'M RUNNING FROM, IT'S THE HEARTBREAK I KNOW WILL COME
I just wanted to make a quick entry today as I see some very interesting patterns forming across asset classes.
Since September, my models have been pointing to ever increasing probabilities of an equity market correction but the correction does not appear to be contained to equities. Here's a look at the relative performance of treasuries to equities and it's clear that they've been getting hit harder than stocks since the end of the summer (treasuries are represented by the blue line)...
Corporates have also been taking a bath and now high yield bonds look like they may be turning over too...
Other notable safe-haven assets like metals have also been stressed - although gold has moved into a short-term bullish pattern.
This is all happening on the backs of a renewed dollar rally as the Fed is seemingly running out of excuses to keep rates at rock bottom levels.
Why is this happening? Many Fed officials have warned against the dangers of maintaining highly accommodative monetary policy for prolonged periods in the scenario that there would be no ammunition to fight future economic slowdowns. While there are no current signs of an economic slowdown, there are signs of market stress where traditionally safe-haven assets outperform more risky alternatives. However, with already low rates and a strengthening dollar, there may be nowhere for investors to run to for haven. Should this scenario play out, hedge funds as an asset class should do well on a relative basis but that remains to be seen.
I just wanted to make a quick entry today as I see some very interesting patterns forming across asset classes.
Since September, my models have been pointing to ever increasing probabilities of an equity market correction but the correction does not appear to be contained to equities. Here's a look at the relative performance of treasuries to equities and it's clear that they've been getting hit harder than stocks since the end of the summer (treasuries are represented by the blue line)...
Corporates have also been taking a bath and now high yield bonds look like they may be turning over too...
Other notable safe-haven assets like metals have also been stressed - although gold has moved into a short-term bullish pattern.
This is all happening on the backs of a renewed dollar rally as the Fed is seemingly running out of excuses to keep rates at rock bottom levels.
Why is this happening? Many Fed officials have warned against the dangers of maintaining highly accommodative monetary policy for prolonged periods in the scenario that there would be no ammunition to fight future economic slowdowns. While there are no current signs of an economic slowdown, there are signs of market stress where traditionally safe-haven assets outperform more risky alternatives. However, with already low rates and a strengthening dollar, there may be nowhere for investors to run to for haven. Should this scenario play out, hedge funds as an asset class should do well on a relative basis but that remains to be seen.
Comments
Post a Comment