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The Stock Market Is ‘Dancing On The Rim Of A Volcano,’ - CNBC

The Stock Market Is ‘Dancing On The Rim Of A Volcano,’ - CNBC

Release Date:  Friday, November 24, 2017

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The Stock Market Is ‘Dancing On The Rim Of A Volcano,’ Warns Investment Bank - CNBC
On Monday, a Societe Generale report spoke about how investors are too optimistic right now.

“Investors are too optimistic and taking on too much risk in this low volatile environment, setting the stock market up for a potential downfall, according to strategists at investment bank Societe Generale.

“’In a goldilocks scenario of low interest rates, abundant liquidity, stable growth and a focus on the 'good' Trump, investors continue to push asset prices, volatility and leverage to historical extremes,’ said Alain Bokobza, head of global asset allocation at Societe Generale, in a report Monday. ‘Yet, a low volatility carry environment with rather extreme positioning is a dangerous combination, which we recently likened to dancing on the rim of a volcano.’

“Bokobza also compared U.S. stocks to the boiling frog that doesn't realize the trouble surrounding it.

"’Today's current dynamics put the US equity market at a similar risk as the frog,’ he said.

“But Bokobza said the S&P 500 is richly valued despite the uncertainty around Congress and the Trump administration passing tax reform.

“There is ‘a growing risk that tax cuts cannot be passed in Washington, or will be more modest than expected. Such an outcome could raise the risks of a recession,’ Bokobza said, adding that some expectations of tax reform have already been priced into the market.

“Another red flag the market is raising is growth in margin debt levels among companies listed on the New York Stock Exchange.

"’The growth in margin debt has not reached exorbitant levels yet, as was the case just before the 2000s and 2007s market crashes,’ he said. ‘However, we expect to enter a bear equity market environment, and the sell-off may be exacerbated by margin calls being triggered.’

“Overall, Bokobza said he and his team do not expect a market crash or a financial crisis to hit near term. ‘However, we believe that the S&P 500 is showing an asymmetric risk/reward profile,’ adding that a bear market ‘is not so far in the distant future.’" (“The stock market is ‘dancing on the rim of a volcano,’ warns investment bank.’” CNBC 11.20.17)

‘New Normal’ Of Geopolitical Risk Likely To Boost Gold Prices In Coming Years, Citi Forecasts - CNBC
Citi analysts spoke Monday on the geopolitical case for gold investment, investors tending to move into safe-haven assets and the likely events to influence investment into gold.

“The geopolitical case for gold investment has been emboldened in recent months and it seems as strong today than at any point over the last four decades, Citi analysts said. As a result, gold prices were forecast to "push north of $1,400 per ounce for sustained periods" through to 2020.

“Elections and political votes, military attacks and macroeconomic crises were recognized by Citi as some of the key geopolitical events likely to influence investment into gold. And while analysts said there was not a consistent pattern for gold price performance amid such times of global uncertainty, prices were seen to have rallied more frequently during these periods.

“Investors tend to move into safe-haven assets such as gold, the Swiss franc and the Japanese yen in times of geopolitical turmoil as traditional assets such as stocks and bonds are often perceived as a more volatile investment.

“Citi projected gold prices are on track to notch levels of $1,270 per ounce by the end of 2018, before climbing to around $1,350 per ounce and $1,370 per ounce over the next two calendar years." (“’New normal’ of geopolitical risk likely to boost gold prices in coming years, Citi forecasts.” CNBC 11.20.17)