The correlation between the stock market and the price of oil is now 96% ( quoted on CNBC earlier today). This is a problem. As we discussed mid last year, the correlation of almost all asset classes have been 90% plus on a global basis for over 5 years now. The markets have not always been this way. Portfolio managers used to be able to properly hedge themselves with asset allocation. The only "asset allocation" left are three categories: long, short, or cash. The reasons for this probably include: ETF proliferation, algo trading, high frequency trading, QE, and the declining average age of portfolio managers in today's markets. Technology and youth are good in a lot of ways; however, there is too much reliance on it. The vast majority of the trading and investment blogs I subscribe to; do not have any experience relying on "gut instinct", they place their faith almost entirely on formulas and technology. Everybody looks smart in a bull market. It worked wonders for a former " Bond King" ( no need to name). If I were a Wall Street CEO, I would make it mandatory that all traders, portfolio managers, quants, and high frequency traders learn game theory. At least poker,that way they learn "gut instinct" and become a "Market Artist". I digress.....
The problem is that their is A LOT of money that has been invested in China, Technology, and The Oil Patch over the last 4 years.
Targets until further notice are:
1600 on S&P500
$22.50 on Oil
Odds of recession are currently 65%
