{"id":59022,"date":"2018-02-16T12:00:39","date_gmt":"2018-02-16T12:00:39","guid":{"rendered":"https:\/\/www.biphoo.com\/bipnews\/?p=59022"},"modified":"2018-02-16T12:00:39","modified_gmt":"2018-02-16T12:00:39","slug":"u-s-market-gurus-who-predicted-selloff-say-current-calm-an-illusion","status":"publish","type":"post","link":"https:\/\/www.biphoo.com\/bipnews\/business\/u-s-market-gurus-who-predicted-selloff-say-current-calm-an-illusion.html","title":{"rendered":"U.S. market gurus who predicted selloff say current calm an illusion"},"content":{"rendered":"

U.S. market gurus who predicted selloff say current calm an illusion<\/span><\/strong><\/span><\/h2>\n

Some veteran investors who were vindicated in calling for a pullback in shares and a spike in volatility could now be cheering. Actually, they\u2019re looking at the risks that still lie ahead in the current relative calm.<\/span><\/p>\n

The last week\u2019s wild market swings confirmed that the market was in correction territory – falling more than 10 percent from its high. The falls were triggered by higher bond yields and fears of inflation but came against a backdrop of a stretched market that had taken price\/earnings levels to as high as 18.9. Adding to downwards pressure was the unwinding of bets that volatility would stay low.<\/span><\/p>\n

The fall had come after a growing number of strategists and investors said a pullback was in the offing – although the consensus opinion was that the market would then start rising again.<\/span><\/p>\n

The big question is: what comes now?<\/span><\/p>\n

\u201cDo you honestly believe today is the bottom?\u201d said Jeffrey Gundlach, known as Wall Street\u2019s Bond King, last week, who had been warning for more than a year that markets were too calm. Gundlach had been particularly vocal in his warnings about the VIX, Wall Street\u2019s \u201cfear gauge,\u201d which tracks the volatility implied by options on the S&P 500.<\/span><\/p>\n

The sell-off in U.S. stocks derailed some popular short volatility exchange-traded products, which contributed to more downwards pressure on the market. Gundlach in May last year warned that the VIX was \u201cinsanely low.\u201d<\/span><\/p>\n

Hedge fund manager Douglas Kass from Seabreeze Partners Management Inc was short SPDR S&P 500 ETF and said he \u201ctook a lot of small losses\u201d last year but says he still sees more stress ahead. He said he is now re-shorting that ETF.<\/span><\/p>\n

Investors who bet low volatility would continue will need time to unwind their strategies, Kass said.<\/span><\/p>\n

Dan Fuss, known as Wall Street\u2019s Warren Buffett of bonds, has been warning for years that Treasuries were vulnerable to a vicious sell-off and set for much higher yields and lower prices. \u201cI\u2018m not trying to be an \u2018end of the world person\u2019 here, but it is a possibility,\u201d Fuss told Reuters last November.<\/span><\/p>\n

In a telephone interview this week, Fuss, the vice chairman of $268-billion Loomis Sayles and one of the world\u2019s longest-serving fund managers with six decades of experience, said he had built cash and cash equivalent reserves to their most extreme levels in his Loomis portfolio and had put some of that money to work last week.<\/span><\/p>\n

His biggest worry in 2018: \u201cThe geopolitical side. Nothing beats peace.\u201d<\/span><\/p>\n

Veteran short-seller Bill Fleckenstein, who ran a short fund but closed it in 2009, said that \u201clast week\u2019s action was an early indication that the end of bull market is upon us.\u201d<\/span><\/p>\n

Fleckenstein said there was a lot of money in the market with no conviction behind it, for example, buying index funds and ETFs just \u201cto be part of the party\u201d which was an element of \u201chot money.\u201d<\/span><\/p>\n

\u201cLast week was just the preview to the bigger event that we\u2019ll see this year probably,\u201d Fleckenstein said. Fleckenstein said he is not short at the moment – although he did make \u201ca couple of bucks\u201d last week shorting Nasdaq futures. He said he is looking for an opportunity to get short again. He said he has \u201cflirted with the idea of restarting a short fund\u201d.<\/span><\/p>\n

\u201cI\u2018m not short at the moment, because the action was such that I covered, but I expect that I\u2019ll be short aggressively at some point this year. It\u2019s not quite time, but it\u2019s pretty close.\u201d<\/span><\/p>\n

Many strategists have been bullish about the market\u2019s potential to stretch the near-nine-year-old bull market further. Many had said they expected a pullback, but then a resumption of gains.<\/span><\/p>\n

The drop in the benchmark S&P 500 last week did not dent strategists\u2019 expectations for mild to moderate gains in the U.S. stock market by the end of the year, as they cited strength in corporate earnings and interest rates not expected to derail equities.<\/span><\/p>\n

Byron Wien, longtime Wall Street strategist who is vice chairman in the Private Wealth Solutions group at Blackstone, said in his predictions for 2018 that this year the S&P 500 would have a 10-percent correction.<\/span><\/p>\n

\u201cI don\u2019t think we\u2019re done,\u201d said Wien, who ultimately thinks the bull run will continue some more and that the S&P would end the year above 3,000. But the path there could be bumpy. Wien thinks the correction \u201cdid not cleanse the optimism sufficiently\u201d and sees further downside beyond the 10-percent fall – which has since been partially recouped.<\/span><\/p>\n

\u201cEveryone says: \u2018Oh, well, now we\u2019ve had the 10 percent correction that everyone was waiting for, then we go back up again\u2019,\u201d said Wien. \u201cBut it\u2019s not as simple as that.\u201d<\/span><\/p>\n

(This version of the story was refiled to remove the erroneous \u201cpercent\u201d from P\/E level in paragraph 3)<\/span><\/p>\n

Source:-\u00a0https:\/\/www.reuters.com\/article\/us-usa-stocks-predictions-analysis\/u-s-market-gurus-who-predicted-selloff-say-current-calm-an-illusion-idUSKCN1FZ2FY<\/span><\/p>\n

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