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Risk Parity Panic? Stocks, Bonds Dumped At Open

Monday, March 6, 2017 8:06
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Is this the risk parity fund blow that many have been worried about?

Dow drops below 21k, 30Y Yields nearing 3.10%… Something’s breaking.

As a reminder, here is what Jim Bianco said over the weekend

To be clear, the stock bond relationship hasn’t changed yet. But you will know it’s happening when you see turmoil in the financial markets, especially when risk parity funds start to blow up. Risk parity funds, an investment concept pioneered by Bridgewater Associates, are basically an artifact of the deflationary mindset. They trade the stock-bond relationship based on how it’s been for the last twenty years. So if this relationship changes you could either look at all of these correlation charts, or you could just open up The Wall Street Journal or watch CNBC, and you’ll hear stories about risk parity funds blowing up because their models aren’t working anymore. Basically, the same thing that happened with Long-Term Capital Management could happen with risk parity funds in the next regime change.

Probably nothing…


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