… there are converging signals that suggest the risk-on trade is about to reverse polarity to risk-off. These include:
1. Junk bonds. …
2. Soaring U.S. dollar. … is destabilizing the global foreign exchange (FX) markets. FX has been the source of many of the risk-oncarry trades that have been driplines of financial cocaine for global stock markets.
3. Reversal of the Federal Reserve’s quantitative easing (QE) programs. … the October end of the QE asset buying program now looms large. … (Belief that QE has been/can be) replaced by Bank of Japan and European Central Bank QE programs … fails to take into account the diminishing returns on BOJ and ECB stimulus.
Those spigots have been open for so long that adding more monetary stimulus no longer moves the needle positively. Rather, the extreme measures push the global fianncial system into increasingly risky territory.
4. Geopolitical spillover. …
(and some great charts!)