Tags: stock market | crash | economy | investors

Keep Eye on These 2 Markets for Crash Warning Signs

By    |   Wednesday, 13 May 2015 08:37 AM

Market crashes never really come as a surprise. In hindsight we can always identify an event that signaled the worst was yet to come.

In 2007, the signal was the collapse of two Bear Stearns funds invested in subprime mortgage derivatives.

In 1997, Asian currency markets warned of a financial storm.

In 2000, the selloff in tech stocks in the spring was followed by a short recovery and then a complete collapse.

Most investors ignore the warning but ever since tulip bulbs collapsed in 1637, markets have warned of disasters.

In the current market environment, two trades stand out as potential sirens. Junk bonds and volatility ETFs are being used inappropriately and providing the first sign of a bear market.

Junk bonds are being used as a substitute for high quality income investments. Junk bonds actually deliver the worst of both worlds.

When stocks are in a bull market, junk tends to underperform and gain less than stocks.

When stocks fall, junk tends to fall further and faster than stocks. Although they are called bonds, junk bonds have relatively little in common with bonds when it comes to trading.

Volatility ETFs were specifically designed for day trading and fund sponsors warn against long-term positions in these funds.

Warnings in the prospectus haven’t stopped investors from putting billions of dollars into funds that have to make trades near the close every day to meet their investment objective. It seems safe to assume large firms like Goldman Sachs are prepared to benefit from this when market volatility increases.

These two markets – junk bonds and volatility ETFs – are likely to fall sharply right before the next bear market. Every investor should be watching them closely.

© 2019 Newsmax Finance. All rights reserved.

   
1Like our page
2Share
MichaelCarr
Market crashes never really come as a surprise. In hindsight we can always identify an event that signaled the worst was yet to come.
stock market, crash, economy, investors
284
2015-37-13
Wednesday, 13 May 2015 08:37 AM
Newsmax Media, Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved