Tags: brexit | invest | risk | worry

MarketWatch: 6 Investor Risks Bigger Than Brexit

MarketWatch: 6 Investor Risks Bigger Than Brexit
(Dollar Photo Club)

By    |   Wednesday, 22 June 2016 07:32 AM

A group of experts who participated in a recent Investing Insights panel discussion sponsored by MarketWatch in London said Brexit, negative interest rates, and a rising U.S. dollar were, at the time of the panel discussion, the "obvious risks" for investors.

But the panelists — Mark Hulbert, editor of the Hulbert Financial Digest, Helen Thomas, managing director at BlondeMoney; and Anne Richards, who at the time was chief investment officer at Aberdeen Asset Management and is now the incoming chief executive at M&G Investments — also suggested that there are "some not-so-obvious risks "as well.

But there’s a distinction to be made between "fear" and "risk," MarketWatch explained. “We talk an awful lot about the things that scare us and they’re not necessarily the riskiest things that are out there and as a first observation,” Richards said.

Among the "risks" to worry about, Hulbert said, Brexit is not on the list.

“It’s not that big of a deal,” he said. “We are going to be analyzing this issue to death and it already has been. If you go back and look on Google Trends when Brexit first started appearing very heavily in the financial press, it was a long time ago.”

Six other things investors should worry about:
  • Uncertainty over the U.S. presidential election. "If we’re not worried about what the implications of what’s going on in the U.S.," Richards. "We have no idea what either of those presidencies (Donald Trump or Hillary Clinton) would look like.”
  • The Treasury bond yield curve. Despite the fact that bond yields are up, there is still no risk-free rate any more. “We have no idea what a risk-free rate is,” Richards said. “We have lots of places now where you’re guaranteed to lose money and that’s the closest you can get to a risk-free rate. That’s quite a scary thing to have.”
  • Inflation (or the lack thereof). “Despite everything that central banks have been flinging at markets since 2009, we still have no sign of anything really barring some very minor pockets of inflation out there,” Richards said. “And that’s been a long period now where we haven’t had inflation. And there’s if anything a deteriorating trend in that. That’s changing business models. It’s changing the way governments are run. This is a big thing and it’s I think coming to its head this year.”
  • Oil-price shock. “This is a genuine risk because nobody’s watching it; it’s the risk of oil-price shock,” Richards said. “Look at the rig count in the U.S.,” she said. “Look at how that balance could be shifting more rapidly than any oil cycle we’ve had in yet. I’m not saying that it’s going to go up from here and go up dramatically from here, but I’m saying the balance of probabilities on that has shifted and nobody’s really noticed.”
  • Overvalued markets. “If I had to come up with one thing that we’re not paying attention to that is going to be the big issue and that would be overvalued markets, especially overvalued equity markets,” Hulbert said. “…No one’s talking about that. And part of the reason is understandable. Overvaluation doesn’t change very quickly. And it’s been overvalued for many years, so it’s boring.”
  • Lack of liquidity and volatility. “(There are) many reasons why that is going to become persistent and get an awful lot worse,” Thomas said. “And, in fact, as much as ever in your portfolio, you should look at return streams and what might affect them. Clearly risk management is a key part of this as well. Potential issues with liquidity will be here with us for a long time to come.”
The MarketWatch panel isn't alone in its gloomy view of the economy.

Lawrence Summers, former Treasury secretary and onetime economic adviser to President Barack Obama, warns that the economy is full of warning signs despite relative market stability after some recent volatility.

"I think it is a mistake to be too satisfied with where we have been. If we look at the period from 1929 to 1940 and what happened to G.D.P. [gross domestic product] per adult American and we look at the period from 2008 to 2019 as best we can judge it, it is equivalent," he told the New York Times.  "The odds are better than 50-50 that we will have a recession within the next few years."

Other prominent financial experts aren't so pessimistic.

Newsmax Finance Insider Ed Yardeni, who has been ranked among Wall Street's best economic forecasters, predicts stocks will be 10 percent higher by this time next year.

"Is there a recession around the corner? I don't see it," Yardeni, the president of independent firm Yardeni Research, told CNBC recently. Even as speculation abounds over the Federal Reserve's timing on tightening monetary policy, the market bull believes the trend is still up.

"The bottom line here is even if the Fed [hikes] in June, we are still talking about historically low interest rates," he told CNBC. "I do think that the dollar will continue to strengthen, and I do think some of the panic and concerns about the commodity markets were overdone at the beginning of the year."

(Newsmax wire services contributed to this report).

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A group of experts who participated in a recent Investing Insights panel discussion sponsored by MarketWatch in London said Brexit, negative interest rates, and a rising U.S. dollar were, at the time of the panel discussion, the obvious risks.
brexit, invest, risk, worry
Wednesday, 22 June 2016 07:32 AM
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