18/12/2010 - New Report: It's Dangerous to Diversify -- Find Out Why
Despite near-unanimous endorsement among mainstream advisors, the strategy of portfolio diversification has a huge, glaring flaw: Namely, when large sums of liquidity begin to flow into global investment markets, formerly disparate trends become strongly correlated. And markets that go up together ultimately go down together; in turn, the value of diversified portfolios goes down with them.
For years now, Wall Street has tap-danced around the liquidity risk. Here's how former Citigroup CEO Charles Prince described it in July 2007:
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New Report: It's Dangerous to Diversify -- Find Out Why
A free report from Elliott Wave International reveals the risks of portfolio diversification
December 16, 2010
By Elliott Wave International
About The Publisher
This article was syndicated by Elliott Wave International and was originally published under the headline New Report: It's Dangerous to Diversify -- Find Out Why. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.
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"When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you've got to get up and dance."
Three months later, Prince announced that Citigroup's quarterly earnings would be down 60%. Within the year, Prince had danced himself out of a job. Diversified investors around the world were feeling the liquidity crunch.
But after many miserable months for stock and commodity investors, the markets rebounded together -- almost in lock-step. Commodities lifted off in late 2008, and stocks followed in March 2009. Everything that declined together was going up together, and market watchers began to take notice.
"Liquidity with respect to stocks has become indiscriminate," reported a widely respected market technician. "When money's flowing in, they all go up. When money's flowing out, they all go down."
Mainstream investors finally began to recognize the phenomenon Elliott Wave International's Robert Prechter warned about in his 2002 best-seller, Conquer the Crash.
Turns out, now almost 10 years after Prechter coined the phenomenon "All The Same Markets," the correlation is still positive. Unfortunately for millions of diversified investors, the outlook is not.
According to a new report authored by Prechter and his EWI colleagues, the second round of liquidity crisis is fast approaching and perhaps has already begun. If you invest your money in a diversified portfolio, it's time you read this incredible new report now.
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