Unusual Forecast (Part 3): Flash Crash in S&P 500 with -25%

Saxo Bank’s Peter Garnry, normally a Market Bull, sees a great opportunity for a flash-crash in 2018, which will cause the S&P500 to crash 25%. One of the triggers, Garnry says, are likely to be so-called risk-parity funds, which are very common investment models that buy stocks and bonds, the latter as a hedge against falling equity markets. These risk-parity funds, however, run into trouble whenever stocks and bonds collide at the same time – as in the turbulence in August 2015, when China devalued the yuan in a major move (and sold US and European government bonds to support the yuan).

The foreseeable sell-off is also accelerated by the massive short holdings in the VIX – with the strategy to shorten the volatility, you could make very good money in recent years, but the boat is now so full that it threatens to capsize!

Be the first to comment

Leave a Reply

Your email address will not be published.