For BlackRock, This Is The Red Flag Among Record Low Volatility

Tyler Durden's picture

With both volatility and asset correlations near all time lows...

... and complacency dominating across all global markets, one BlackRock money manager warns that investors should probably be a little more nervous.

Even as the recent stock surge and below-average volatility show investor optimism is near all time highs, markets are underpricing global political risks, said Russ Koesterich, who helps manage the $41 billion BlackRock Global Allocation Fund.

Why is Koesterich worried? The price of gold, which has failed to validate the prevailing calm, in fact just the contrary.  Bloomberg reports:

Looming elections in Europe and political uncertainty in the U.S. are among developments that could shift investor sentiment, Koesterich said. Adding to the threat is the potential impact of Britain’s exit from the European Union and a debt crisis in Greece. Such concerns have helped boost haven demand for gold, which has climbed almost 8 percent this year after posting the worst quarter since 2013.

“That hiding political risk is not reflected in markets,” Koesterich said in a telephone interview Thursday. “People are not that nervous, and there are things that could go wrong, particularly when you think about all of the political risks. That adds to the argument for having gold in a portfolio.”

As a result he recommends gold as insurance. Validating his point is the recent drfit higher in gold which has decoupled from VIX, and as of this morning was trading at three month highs, up 0.3% at $1,242

 

"Some of this rally has been based on the fact that investors expect some stimulus from Washington in the form of tax cuts and potentially fiscal stimulus as well,” Koesterich said. “What happens if it doesn’t come?” While “there will be some stimulus, the timing, the form and the magnitude are still very much uncertain.”

In the U.S., stocks this week posted the longest rally in three years, inflation indicators have risen and the labor market is strengthening. At the same time that a gauge of global economic policy uncertainty climbed to the highest on record in January, suggesting something has to snap.

“Some of this rally has been based on the fact that investors expect some stimulus from Washington in the form of tax cuts and potentially fiscal stimulus as well,” Koesterich said. “What happens if it doesn’t come?” While “there will be some stimulus, the timing, the form and the magnitude are still very much uncertain.”

Those who are buying gold - despite the recent jump in market-derived inflation indicators - already have their answer.

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BabaLooey's picture

Red Flags, warnings, lectures............

oh wait..........they're not coming from the ctrl/alt............

..............................carry on

Gilnut's picture

Hmmmmm........seems to me that everybody is moving to one side of the boat.  Me, sidelines.......things are looking a bit to Titanic for my liking.  Huge moves are made when everyone gets to one side of a trade.  It always becomes the wrong side.  :)

Oldwood's picture

Everyone is afraid of getting their new shoes wet instead of worrying about drowning in the deep dark sea . Like bankruptcy the act of drowning many times starts slowly at first and then suddenly....At the end.

Yes, its uncomfortable wearing this life preserver around my neck, but I can't help but feel it will come in handy soon.

LawsofPhysics's picture

Well put Oldwood.  Long term thinking versus short term gratification.

buzzsaw99's picture

yeah, long overdue congrats to the gold bugs. +8% in this environment = not too shabby.

NoWayJose's picture

Something bogus here - the Blackrockers are 'establishment' - and the 'establishment' would never recommend gold. You could easily look at that chart and predict that gold will go back down to the Vix level too!

Stay away - establishment - you make me nervous!

deuce awesome's picture

I thought for sure gold would hit it's stride after Trump one.

Instead it got hammered.

Either a) I have no idea what Im talking about or B) I need to learn that sometimes unravelling takes time

Fizzy Head's picture

a)yes you do, Precious metals will always remain the real money b) especially when fiat/digital currencies can be printed at will.

 

c)you are on the outside looking in the glass house full of dreamers now, it may look awesome, until someone pulls the fire alarm.

LawsofPhysics's picture

Paper gold or physical? All of my ounces are still intact and just like the central banks I took delivery of more of this "tier one asset"...

Rolixc's picture

I bought sev. Goldshares one year ago, when nobody wanted them ........... some are plus 300%!

Rich Monk's picture

If you do not own it physically, than what you really own is an illusion of wealth.

Rolixc's picture

Have Shares of miners AND physical Gold in own safe. Gold shares are value because you own shares on a company, much better than ETF on non existing Gold ....

Ban KKiller's picture

Didn't buy for now, bought for 10, 15, 20 years down the road. It's....just a hedge.