Saudi Shake-up Appears To Be Shaking Up Some Global Markets

November 10, 2017, 4:00pm EST                                       Invest Alongside Billionaires For $297/Qtr

BR caricatureWe talked yesterday about the significant range (1,000+ points on the Nikkei futures) and big reversal in Japanese stocks. And how that might be signaling a big event for global stocks, as past 1,000+ point ranges have been driven by major global events.

Another big mover yesterday, that has gotten attention in the media is the junk bond market – which has been selling off (pricing in higher yields, higher risk).

So today we get Japanese stocks lower again. Same for European stocks.

The media likes a tidy story, so blaming it on political posturing surrounding the timing of tax cuts has been suitable for them. I suspect it has to do with liquidations surrounding the asset freeze in Saudi Arabia.

Yesterday, when things were looking a little dicey for stocks, following the events in foreign markets overnight, U.S. Treasury yields remained firm, and even finished higher on the day. This is notable because in recent years, with just a sniff of lower stocks and some global market turbulence, people would storm into Treasuries (i.e. yields lower). Yields were among the biggest mover of the past two days (UP not down).

So there seems to be some indiscriminate selling going on in specific markets. Gold was the victim today. A huge order came in at 11am and knocked gold down 10 bucks in 10 minutes.

When you have $100 billion worth of assets under scrutiny in Saudi Arabia (a third of which is already been frozen), there is a lot of exposure in the global financial system to these assets. If banks and counterparties begin curtailing margins on accounts, and begin stepping back from notable banks that deal with these accounts, you can quickly get destabilization across global markets. Long Term Capital Management comes to mind.

With that said, the corrections we’ve had in markets in the post-crisis era have tended to be fast. Risk enters quickly, and the slide becomes very slippery. But it has paid to buy into the fear. The recoveries have been very quick and lucrative.

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