Monday, April 9, 2018

Volatility likely to remain high for 2018

Marc Faber discusses about the bubbles that may have popped and recommends a reduction of long stock market positions. Below excerpt from Gloomboomdoom.

In earlier reports I mentioned two conditions that were needed for the formation of a major stock market top: Excessive speculation and heavy participation by the public, and the revelation of a major fraud. The speculation in Crypto-currencies over the last six months fulfills the condition of heavy speculative activity by the public. The potential disclosure of massive irregularities in the online space, and accounting and other fraud at quite a few other companies, crypto currencies, and government agencies are likely to shortly fulfill the condition of fraud disclosure, which usually shakes investors’ confidence badly. [Kindleberger calls the moment where investors realize that the time to withdraw from the market has arrived “revulsion.”]

According to Thomson Reuters, “The overall tech sector now has a 27% weight in the S&P 500, making it by far the largest component.” Therefore, considering all the fundamental and technical factors which could potentially become very negative, I reiterate my recommendation to reduce equity positions. Furthermore, I strongly recommend to underweight FAANG and related stocks, which account for a high percentage of equity index funds’ assets.

Last month, I explained that higher interest rates were far from certain and that Treasuries could rally. I opined that it was possible that higher interest rates already had a negative impact on the over-leveraged and asset-price driven US and global economy.

It is likely that 2018 will bring about plenty of turmoil in asset markets and that volatility will remain very high.