Even before Ray Dalio doubled down on his warning that the US has become as dangerously fragmented as during the pre-World War II days of 1937, prompting him to “tactically reduce” risk, some of the biggest names on Wall Street were selling.
Two weeks ago, T. Rowe Price made waves when it said that it had cut the stock portion of its asset allocation portfolios to the lowest level since 2000. The Baltimore-based money manager said it also reduced its holdings of high-yield bondsand emerging market bonds for the same reason. Roughly at the same time, in its mid-year review, Pimco said that “with the macroeconomic backdrop evolving in the face of potentially negative pivot points and considering asset prices generally are fully valued, we are modestly risk-off in our overall positioning” adding that ‘we recognize events could still surprise to the upside, but starting valuations leave little room for error.’
This followed a similar preannouncement by DoubleLine’s Jeff Gundlach who not only said that he is reducing his positions in junk bonds, EM debt and other lower-quality investments, but predicted – correctly – the volatility spike in the first week of August.
Then it was Guggenheim’s turn to make a similar warning: in its Q3 Fixed Income Outlook, the asset manager said that “the downside risk of a near-term market correction grows the longer volatility
remains depressed. Asset prices are at record highs while volatility has rarely been lower. Our Global CIO and Macroeconomic and Investment Research team believe these indicators point to a dangerous level of complacency in the market, which has shrugged off the Fed’s guidance that economic conditions support monetary tightening… given where asset prices are, they would have a long way to fall.”
This post was published at Zero Hedge on Aug 22, 2017.