What Capital Flows Tell Us About A Coming 2018 Correction?

Quantitative analysis shows that three liquidity-based factors, above all, often combine to warn of an approaching bear market (6-12 months ahead) in global risk assets. Today, all three are signalling caution: one measures the skew in exposure – investors’ risk appetite – and the other two a peak in the flow of liquidity into markets – Central Bank liquidity injections and cross-border capital flows. A correction is not certain, but the track record of these factors is sufficiently good for us to pay attention.