A recent Bloomberg article reports that there is a growing contingent of hedge fund managers who see market chaos on the horizon.
The article reports that in May, billionaire George Soros “warned of a looming financial crisis and an existential threat to the European Union.”
But betting on a crash has been a “painful strategy for years as central banks across the globe bought assets to prop up markets,” the article says, offering a comment from Lyxor Asset Management strategist Philippe Ferreira: “Since the global financial crisis, the number of doomsayers has risen exponentially. But aside from political risks, the global economy is doing well.”
Fund manager Crispin Odey, which the article describes as a “vocal critic of central bank policies,” believes some red flags have emerged that spell trouble ahead. In a May letter, Odey argued that the stocks investors bet against most heavily have risen by almost 30 percent in two months, and the correlation between this and a market correction within 6 weeks is greater than 80%.
European fund manager Greg Coffey recently wrote, “The last five years of quantitative easing has floated all assets and all strategies. Investors were rewarded for both inactivity and buying the dip in everything. That approach will be challenging this year.”