Not Everybody Is Running For The Hills...

The past six weeks or so has been dizzying. Markets getting creamed. Strong rebounds. An oil futures contract trading NEGATIVE - something that has never happened before. Individual investors spooked by the economic uncertainties dumping stocks and putting their money in cash.

For those "risk" investors, there is no question that the financial markets are about as "risk off" as risk off could be. Or are they?

At Excalibur Pro, we use a metric that the IMF has used in the past that compares current prices with a moving average - and what's fascinating to see is that not only are many typical "risk investments" moving back into a more neutral stance, but one that has moved into a position of the "risk on" mode. That one is the NYSE Fang+ ETF (it represents Facebook, Apple, Netflix, Amazon, Alphabet, Alibaba, Baidu, NVIDIA, Tesla and Twitter.) So it seems that while there is still economic uncertainty caused by COVID-19, some are willing to take on risk.

What's next? In the FX world, there has been strength recently in AUDJPY - traditionally one of the strongest risk indicators in FX. The SSE Composite has moved significantly from "risk off" to a neutral position. As has the junk bond ETF (HYG) and the ETF that represents the MSCI Emerging Markets Index.

That ETF (ticker: EEM) is the one to worry about - it could be sending a head fake. Emerging markets are much less equipped to come out of this economic catastrophe quickly because they don't have the fiscal stimulus or central bank power to stem the tide. But more importantly, they don't have the healthcare systems (both in terms of facilities and breadth of citizen medical coverage) to handle a full blown pandemic that could be heading their way if they are in the Southern hemisphere (their winter). Just look at what's been happening in Ecuador - in the capital, bodies are being tossed into the streets. Medical workers are overwhelmed; funeral homes won't touch the dead bodies.

In other words, when you start to see "risk on" signals develop, it is smart to look north of the equator for investment ideas in the near term.