SIGNS - There have been some things going on out there in recent days that suggest we could be on the verge of seeing a material downturn in global sentiment, at least as that sentiment relates to financial markets. We've managed to do well in recent years despite the tougher conditions, even when considering the stumble in 2017. But I think it will be great when we see a one dimensional correlation in all markets break down, which means, it will be great when everything stops being so heavily tied to what central banks are doing, as the monetary policy normalization process gets underway. So let's take a moment to highlight some of those signs I've noticed that warn of this shift.
ONE - The first sign I noticed in recent days, was the outperformance in the Swiss Franc, against all odds in the previous week, with anything going on last week favoring a move the other way, for a weaker Franc. And so, with the safe haven currency so strong amidst developments that would have had it trading in the complete opposite direction, it was a big red flag that something could be going on, warning of distress out there. Perhaps, some of the bigger players were already liquidating positions back into Francs, with the price action going unnoticed in broader risk markets, given the offsetting demand from smaller players.
TWO - The second sign out there was jump in the VIX, a volatility index that has been trading at absurdly depressed levels for many years on account of the central bank policy accommodation and assurance from this strategy that central banks would support the markets. Naturally, such an assurance bringing certainty and with certainty, there is no volatility. But we are seeing movement in the index again and this is another warning sign that it all could start to get ugly out there. I would qualify this by saying that we have seen these types of attempts higher in the VIX many times before, and we will need to see more upside here to confirm. Nonetheless, it is something to pay attention to.
THREE - The third sign out there comes from the cryptocurrency market. This market has blown up over the past year and it has all of the markings of a classic bubble. There has been a flood of less than smart money into the space and everyone is jumping in to try and make a quick Buck. While it may be tough to digest the possibility of bitcoin sinking back into the $2000s, the fact that bitcoin was trading in the $2000s just months back in the middle of 2017, should give you a flavor of what is possible. We've already seen the market come off from those highs in December, and while it may be looking like a great play here, at over 50% off that high, I wouldn't dismiss the possibility of a much bigger shakeout before the market actually recovers again in time. I could be wrong of course, but I'd rather consider the downside risk. And if this happens, or anything like it, it will likely send nervous energy throughout the broader markets.
FOUR - And finally, that fourth sign out there is the ongoing ability for the price of Gold to hold up into setbacks. Each time it has been knocked back over the past several months, it has rallied back sharply. Now, we have yet to see GOLD push up through critical resistance at $1375 in the form of the 2016 high, but it does feel like the market wants to break through. And if it does decide to push through, I don't think it will necessarily driven off broad Dollar weakness either. I think the break above $1375 will be yet another sign of uncertainty and tension back on the rise as the wounds from the 2008 crisis come back into the spotlight with all of that medicine no longer available via central bank and government stimulus. So these are the things I'm noticing out there and I'll be looking to see what opportunities come our way, should it start to play out. We will be ready.
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