The View | Next killing in markets is betting on the big short
The next great killing in financial markets will likely be made by betting not on what will go up, but on what will go down.
US bonds and Chinese equities are top of the list for short-sellers. Call it a strange rivalry among superpowers, but many investors expect one of these two countries will host the next market crash. Or if Janus Capital’s Bill Gross is right, both will blow.
A crash in US bonds would be a much bigger financial event, but also a less likely one, in the sense that pundits have been calling for this one for years, to no avail. Bonds have been on a bull run since the early 1980s, but recent gyrations in US treasuries are raising the “end of the era” talk once again.
There is much debate as to why US government debt has become so widely owned in the past 35 years, pushing bond yields to a succession of record lows. But the leading theory is pretty straightforward: too much savings and too little investment.
The “global savings glut” hypothesis puts a good amount of blame on the trade surplus countries like China. A massive trade surplus by definition shows a nation is earning more than it is spending, creating an excess of savings which gets parked in banks and bond.
