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!

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