Summary: After years of slow economic growth and rising asset prices in America, with investment gurus and economists predicting booms & crashes, events have again taken center stage. It’s time to again pay attention to the data. {2nd of 2 posts today}
- Risk markets are rolling over, high-grade bonds rise on a flight to safety.
- Broad price movements like this are seldom false alarms; something is happening to fundamentals.
- As usual during the early stages of a crash, we can only guess at the causes. Every crisis is unique. Do not assume this will follow the 2008 script.
- Watch the banks! Banks lead us into financial crises; their stabilization leads us out.
- Watch the data and take incremental steps to a more defensible portfolio stance. Avoid predictions!
This is another in a series of posts about the end to the expansion cycle which began in 2009 (links at the end). We can only speculate about the details and timing, but the broad outlines slowly become visible.
Look to the center of the decline in risk prices: banks. Their stocks are falling. Prices of their credit default swaps are rising. Concerns about their solvency have spouted suddenly, like daffodils after the first Spring shower. That’s how it should be. …
Read the rest at Seeking Alpha.
