You Wanna See Something Really Scary? Try These Market Charts

  • Bitcoin bubbles, savings rates, monetary policy among worries
  • ‘Lack of fear’ in markets at all-time highs also a concern

Shouldn’t Factor Tax Cuts in Forecasts, Says Sonders

All-time highs on the stock market, steady economic growth and only the faintest whisper of inflation -- nothing to be afraid of, right?

Not so, says just about every stripe of analyst on Wall Street.

From sky-high equities with barely a hint of volatility to cryptocurrencies that only seem to rise and concerns that the Fed’s been too loose for too long, here are some of the things that spook the professionals:

Pravit Chintawongvanich, Head of Derivatives Strategy at MRA

“Levered exchange traded products tracking VIX futures, such as the XIV (daily inverse leverage) or the UVXY (daily 2x leverage), have grown tremendously over the past year. The scary thing about levered VIX products is that they can become forced buyers of volatility. This could become a vicious cycle, where anticipation of the volatility buying from VIX products pushes volatility higher (which in turn requires them to buy even more).”

Macro Risk Advisors

Liz Ann Sonders, Chief Investment Strategist at Charles Schwab

“The ongoing uptrend in stocks has only recently seemed to capture the hearts and minds of investors. The recent lack of volatility and ‘teflon’ nature of the stock market has boosted investor optimism, but may have also bred complacency about ongoing risks. We expect more upticks in volatility.”

Michael Gapen, Chief U.S. Economist at Barclays

“Scary things happen when policy is too loose for too long. In the most recent cycles, the pursuit of low unemployment was associated with unsustainable increases in asset prices. What scares me is that we may be repeating past mistakes. Are we generating asset price bubbles in support of maximum employment?”

Megan Greene, Chief Economist at Manulife Asset Management

“The breakdown in the relationship between incomes and savings suggests that the consumer -- who drives every U.S. economic recovery -- may be near the end of the credit cycle.”

George Pearkes, Macro Strategist at Bespoke Investment Group

“For the household savings rate to rise, other sectors must either invest more or save less; all savings must equal investment. With strong demand for U.S. dollar assets from the rest of the world a permanent headwind for the current account and the government deficit already very wide, household savings are likely to stay low without much lower corporate profitability or much stronger corporate investment.”

Bespoke Investment Group

Neil Dutta, Head of U.S. Economics at Renaissance Macro Research

“It is scary that despite a modest upside surprise in U.S. growth this year, consensus forecasters have left their outlooks largely unchanged. The recovery in business investment implies that stronger productivity growth may lie ahead. If that is right, hugging 2.0 percent GDP (as the consensus has done perennially) may be a big mistake. The bond market should take note.”

Ben Emons, Chief Economist at Intellectus Partners LLC

“Asset bubbles followed in a sequence since the 1990s as debt expanded and interest rates fell. Now the bubble may have arrived in interest rates. Looking more closely within the $120-trillion debt market, European government bonds stand out in overvaluation. Now that the ECB is further reducing QE and the euro zone economy may see more momentum in 2018, the extent of the bubble may be revealed.”

Rick Rieder, CIO of Global Fixed Income at BlackRock

“It is ‘scary’ that U.S. government debt with a two-year maturity offers 1.25 percent more yield to investors than European corporate bonds with three- to five-year maturities. European companies operate in a slower growth region and must finance in uncertain environments given the cyclical nature of that economy. Investors should be compensated with more yield for taking on more risk.”

David Schawel, Portfolio Manager at New River Investments

“While there’s no indication that the credit cycle is about to turn, investors are accepting near decades low spreads on various slices of corporate debt.”

Joseph LaVorgna, Chief U.S. Economist at Natixis

“Why is the chart of bitcoin scary? The move in technical terms is parabolic, but it you put it on a log scale, you can see that many times in the past, one could have said the same thing. Will it go higher? I have no idea, but I wish I bought some a few years ago!”

Torsten Slok, Chief International Economist at Deutsche Bank AG

“The most scary chart is this one, which shows how wrong the Fed has been for the past five years or so. Will we get another Halloween scare from the Fed?"

Peter Tchir, Managing Director at Academy Securities Inc.

"It scares me that I don’t have a ‘scary’ chart. Relatively few things seem concerning right now AND those things that do seem concerning -- low volatility, rising treasury yields, low volumes, etc. -- have all been around for some time and have not led to anything bad, so it is hard to treat them as scary.”


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