Two things to think about as the new week begins. The German DAX put in a very rare technical formation as the futures made all-time highs last week and closed below the previous week’s LOWS by almost 0.75%. We have seen this formation in the S&Ps and Nasdaq 100 this year, which resulted in some momentary weakness in the stock markets. Every pundit on CNBC and Bloomberg has pushed the European equities as the better choice for developed market investors but this new signal raises a caution flag. So caution it is until we see if the market can follow through.
Second, Thursday and Friday’s selloff in bonds, equities and precious metals caused me to wonder if some RISK PARITY positions were beginning to be unwound. This may be just some large funds testing the markets’ ability to provide enough liquidity to support a liquidation in the massive positions. BONDS had trouble rallying even as European and Japanese equities dropped. Just something to watch. The Peter Boockvar and Yra Harris discussion from the Financial Repression Authority is worth a read. The transcript has some mistakes but the discussion is worthwhile. Enjoy.
Tags: DAX, risk parity
November 13, 2017 at 3:55 am |
Ok. Yielding to temptation!
The Economist pointed out: “Perhaps the real area of worry should be the corporate-bond market… the corporate-bond market is less liquid than it was before 2007.”
https://www.economist.com/news/finance-and-economics/21730934-it-corporate-bond-market-they-should-worry-about-investors-call-end
November 14, 2017 at 1:41 pm |
Equity valuations are high. But other options look even worse???
https://www.economist.com/news/finance-and-economics/21731127-favoured-market-ratio-not-much-use-short-term-indicator-equity-valuations
November 13, 2017 at 4:50 am |
Yra, are there bonds that are safer than others, if this “risk parity” trade unwinds? I have , investment grade bonds, long term treasury bonds and TIPS. Just trying to protect my 401k. I’m already out of stocks and high yield.
November 13, 2017 at 6:14 am |
Pierre–let me put on my rabbinic hat and ask a question back–if those investments are safe where is safety?You have already protected yourself against most of the prevailing risk by you moves in equity and high yield–the only alternative is your mattress and as they say in the Godfather–we are not going to the mattresses–you really seem to have move to safe harbors
November 13, 2017 at 11:29 am
Entertaining and educational. Thanks Yra, not only do I learn about money following you, but you make me think.
November 14, 2017 at 12:20 pm
Pierre—thanks for the highest compliment–making me think
November 13, 2017 at 7:45 am |
Recently, my Crystal Ball has been very fogieeee but I see that the last high of the DJ 65 Composite was on 10/24/17 . That the DJ Industrials and Utilities made a new high this week. But the Transports have been weak led by the Airlines. Is the Composite in the initial stage of breakdown? Let’s watch this along with the Dax
November 13, 2017 at 11:23 am |
Liquidity still outrageous, positive seasonality, corporations allowed to do one time charges and write anything off they want, GE’s tax rate is 3%. The accountant is 25x more important than any CEO. Valuations do not matter to anyone. If the market drops 10% the Fed will step in & cut rates. This is the longest streak without a 10%correction in history and it has nothing –absolutely nothing to do with earnings. Amazon at 185x earnings and world liquidity still explosive. Stocks going to continue to soar those people looking at valuation have no idea what is driving this market.