Monthly Market Report - November 2017

18th October 2017

Talk to most British investor's and there's a palpable air of foreboding. I would say sentiment is fairly grim though not quite one of panic - yet. For most investors the default position at the moment is probably to stay invested through the cycle although I would suggest that many investors also canít quite still that inner voice which suggests that the next big sell off will be the mother of all price declines. With assets very evidently inflated by QE, the turn around when it comes could be brutal. So, why not look for any signals so that one can dial down oneís risk exposure? Perhaps the most powerful set of signals are based on macro considerations Ė that QE has inflated asset prices and thus its unwinding will cause huge pain. Analysts at Cross Border Capital watch these central bank balance sheets very carefully and although they think that policy-makers have vowed to tread slowly in reversing QE, "the facts that often-dominant cross-border flows already appear to have peaked and that Central Banks are starting out from a much less accommodative position than widely acknowledged, must heighten systematic risks. Feeding these facts into a statistical probability model that has been informed by machine-learning techniques warns that the consequence may be a bear market in World risk assets starting in 2018. This is not yet certain, but watching the upcoming direction of cross-border flows will tell us a lot more."

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