Loading ...The turbulence throughout the markets last week – thanks to Italy – has given investors their first taste of a frothy summer.
Especially the ‘smart money’- they’re bolting for the exits…
The Smart Money Flow Index (SMFI) is a leading-indicator in markets. That means when the SMFI drops sharply, usually the equity markets are right behind it.
And we haven’t seen the SMFI drop this much since the Great Recession of 2008 and the 2001 Recession. . .
What’s going on?
Last week I wrote about the forgotten economist – Hyman Minsky – and his excellent work about the Financial Instability Hypothesis (FIH), which details how an economy shifts through three stages.
From lowest risk to highest risk the stages are: hedged, speculative, and ponzi.
But probably the most important takeaway from the FIH is this simple sentence. . .
The periods of low volatility and market calm are the seeds for high volatility and market chaos in the future; then back the other way around.