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Prins: Beware the Four Flashpoints of Market Volatility

Daily Reckoning  ( Original )
APR 16, 2018

Volatility, in and of itself, is not a bad thing. But whether it’s the trading of news-headline-reading quant algorithms or simply overall market skittishness to blame, when 66-year market veteran John Bogle says he’s never seen volatility like we have now, it bears paying attention.

Former Goldman Sachs insider and frequent central bank truthteller Nomi Prins offers her take on the four primary drivers of volatility going forward.

1) Trade Wars Flashpoints, From China to Canada and Mexico

If financial anxiety builds, a trade war could ignite a currency war. That would cause central banks to protect or position their currencies in order to fight a trade war, inflicting a pattern that elevates volatility on the markets.  Expect trade war headlines and related action to pump up and tear down the markets on any given day.

2) Geopolitical Flashpoints

Even the perceived threat of a diplomatic fallout and rumors of a military response can elevate volatility. War games between the U.S. and North Korea would be an expected recoil — and that would mean uncertainty over China’s response. That would give greater rise to volatile conditions in trade, regional security and stability on the Peninsula. By isolating China — North Korea’s top economic partner and military alley — tensions would only escalate.

3) Stock Buybacks Flashpoints

In the U.S., the Dow Jones finished 2017 up 28.11% adjusted for dividends (compared to 16.47% adjusted for dividends in 2016.). Despite President Trump taking credit for this rally (as President Obama did for rallies during his presidency), stock markets were actually bolstered by $21 trillion injected from global quantitative easing policies.

4) Washington Political Risk Flashpoints

Midterm elections are this November. The way in which the country views Trump can (and will) rise or fall by the time elections come. However, if Republicans were to lose both the House and Senate, the U.S would be caught up in more political instability and potentially, impeachment hearings.

ORIGINAL SOURCE: Four Flashpoints of Volatility by Nomi Prins at Daily Reckoning on 4/13/18