Stock crash looms
You will almost never see reported what actually drives market bubbles — credit directed at financial assets. Credit which will now be unwound. Physical gold is the only safe haven.
Investors can no longer ignore the evidence
Now that bond yields are demonstrably rising into multiyear highs across all G7 government bonds, investment committees will be meeting this week to assess the impact on their investment portfolios and how to derisk them.
They are in a bind, because the conventional view is to change portfolio weightings by reducing equity exposure in favour of bonds. But what do you do when both investment categories should be sold? Obviously, there must be a dash for cash. That is the likely conclusion for domestic investors. But what of their foreign investments?
Ostensibly, the reason for investing in foreign markets is to spread portfolio risk. But here again, when all G7 markets face rising bond yields, values are set to decline significantly, with the addition of currency risk. In these cases, foreign investors always repatriate their investment capital by selling foreign investments first.
The conclusion these investment committees will inevitably come to will be to sell down foreign investments in preference to their own, as the primary source of raising cash and derisking portfolios. It will be followed by adopting a more cautious stance overall, perhaps selling down more volatile equities and reducing the maturity profile of bond allocations.
All this assumes that markets were fairly valued before Hormuz. But as the chart below shows, this is far from the case:
