Global Market Regime Shifts In Play. Expect Volatility
Cam Hui | Jul 15, 2013 02:59AM ET
Having reflected on the global situation, it seems to me that there are two or perhaps three regime shifts occurring. Markets don't handle single regimes shifts well and there will be volatility, but multiple regime shifts are going to mean uber-volatility.
My inner trader wants to dial down the risk in his portfolio as the moves could be treacherous. We will see rip-your-face-off rallies (for anyone caught short) and bayonet-the-wounded downdrafts (for anyone with long positions).
US: Tapering = Rising risk premiums
Let me explain by going through the Big Three global regions one at a time: the US, Europe and China. In the US, the Fed indicated on May 22 that it is considering a plan to taper off its QE purchases. In other words, it may be taking its foot off the accelerator but it is not about to stomp on the brakes (raise rates).
The more subtle message that the market still hasn't gotten is that the various QE programs succeeded in lowering risk premiums by pushing market participants to take on more risk (reaching for yield, carry trades, etc.) Undoing the effects of QE, even though slowly, represents a regime change as risk premiums will start to rise. This will represent a headwind for equity valuations longer term, though the markets will be choppy as it adjusts by focusing on the headline of the day (see . ("Qwest"). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest. None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned
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