The danger of diversification is that it appears to work over long periods of time. Then during a global crisis the short-term correlation of multiple assets tends towards 1.
This tendency is a function of liquidity and capital flows. When everyone is already invested in a security or asset the only direction that asset can move is likely to be downwards. The more liquid the asset the more likely there are to be large amounts of capital invested.
When the crisis hits there is no where to hide. Traditionally “risk-free” government securities were the safe-haven of choice during crises. They may yet help to protect during the next crisis but since it has been the fall in interest rates on government securities which has driven the global bull-market in stocks and real-estate, I wonder whether there will be anywhere to hide come the next melt-down.
This train of thought led me to this weeks Macro Letter:
The Risks and Rewards of Asian Real Estate
My conclusion is to invest in Indian Real Estate and other smaller Asian markets. There are many difficulties with Real Estate investment, I discuss some of them. My overall recommendation is to invest where existing investment is low and other factors are propitious.
Focus Economics
I would like to take this opportunity to thanks Focus Economics, who nominated me one of their Top Economics and Finance Blogs of 2017.
To read the entire report Please click on the pdf File Below