I have noticed how for some reason assets classes across unrelated markets seem to be moving in tandem. During the past few weeks on several occasions prices for currencies, indices, metals, energy, grains and interest rates have moved together. Fridays selloff in everything listed above is another clear example. Does anybody have any idea if this is related to computer based models using the exact same trading code ? Can a few hedgies command so much control over so many different markets at the same time?
My opinion is that this is what happens when one large asset is "liquidated" and that cash is shifted into other market segments. Many real estate investors are capturing the appreciated value of their RE holdings via equity loans and such, which do not require that they sell the properties. This money is then reinvested in other segments such as stocks/bonds/commodities. The resulting situation is that the RE market doesn't crash as most people do not sell their holdings. Lending institutions get a boost because the number of collateralized loans at higher rates increases. And all other segments that receive the new cash infusions benefit as well. You end up with a market-wide rally. But one thing to keep in mind is that for every buyer there is a seller. Whenever I see stocks making new highs simultaneously with bond/metals, I have to assume that large institutions are making the market for a good part of the transactions. IOW, they are providing sellers in the stock market while buying up the bond/commodities. Most people I know are taking equity loans to invest in long-only equity mutual funds. I also hear a lot of people shifting their retirment plans out of money markets and into equities. This suggests that we are in later stages of the stock market rally but haven't yet seen most of the bond/commodity rally.
That's my guess. Mean/Variance analysis is truly the ultimate form of curve fitting. Lack of historical correlation combined with large returns (in hindsight) has resulted in lots of billion $ firms doing the same things. Out of sample result: no lack of correlation and low returns.
And on several occasions they have not moved together. whats your point? and do you have data to prove this or do you just think it is so? anyway, in times of crisis correlation increases but there hasn't been a crisis lately.