... “In current market conditions, there is little point trying to understand the nuances between different asset classes, or the relative value within asset classes. Commodities behave like bonds, which behave like equities. They are no longer easily identifiable, uncorrelated trades.”
Furthermore, Mr. Williams said, close correlation of seemingly disparate assets implies that many portfolios may not be as diversified as we may think.
While the ride is enjoyable, there is the more worrisome thought of the other side of the "risk on" trade: What happens if everyone heads for the exits at the same time?
Mr. Sommer goes on, quoting Eswad Pasad, a professor at Cornell University:
“Financial markets are supposed to be very helpful in diversifying risk, but the whole point is you want uncorrelated returns across markets,” he said. “If markets are more correlated now, it may be because people are trying to diversify by investing globally, but when there is a trigger event — when something nasty happens in the world — they sell assets across markets, and the usefulness of this entire diversification strategy must come into question.”