Quick Recap
2016 has been volatile for markets and Bill Gross says there are 5 big questions that we need to address in markets and the economy right now
It means volatility is likely to remain high in the months ahead.
What You Need To Know
For many traders 2016 had been a tough year. From the first day's trade markets have been volatile and moves have been accentuated by uncertainty.
Increasingly central banks are experimenting with negative interest rate policy and that has driven bond curves below zero with more than $13 trillion in global government bonds now yielding below zero.
That is they have a negative interest rate.
That distorts asset markets and the value of currencies, commodities, bonds and other tradable instruments.
It throws up a number of important questions for traders and investors. They're questions that Bill Gross from Janus Capital has addressed in his latest monthly Investment Outlook.
Gross' letter starts off a little weird talking about kittens and Victoria’s Secret but got serious and asked 5 key questions that face traders and investors in the current environment.
My colleague Bob Bryan at Business Insider summed up the not nicely:
The questions were:
- “When does our credit-based financial system sputter/break down?”
- “Can capitalism function efficiently at the zero bound?”
- “Can $180 billion of monthly quantitative easing by the ECB, BOJ, and the BOE keep on going? How might it end?”
- “When will investors know if current global monetary policies will succeed?”
- “What should an investor do?”
Essentially the answers to these five questions summed up the totality of Gross’ recent ideas and letters: the credit-fuelled economy is running out of steam and central banks can continue with their easing, but it will distort the markets. These two realities will eventually lead to disaster and terrible returns for investors unless there is serious GDP growth pick-up.
Given those facts, investors should be wary, according to Gross. This means people should stay away from normal financial assets.
“I don’t like bonds; I don’t like most stocks; I don’t like private equity,” wrote Gross.
They really are the big questions for investors and it’s easy to see why folks are buying property and gold across the globe.
What does it mean for AxiTraders?
The background atmospherics are important for traders whether they are fundamentally or technical based.
What Gross' question do is highlight that as we head well into the second half of 2016 there are still some very big questions to be answered. That means volatility is likely to remain high.
For many traders that means opportunity. But it also means that risk management protocols retain their elevated status in 2016 and remain a key part of remaining profitable in a sustai