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“All Hell Could Break Loose”: Wednesday’s “Liquidation Combination Of Doom” Has Taken Place On Only Two Prior Occasions In History

Yes, yesterday’s furious 3.5% equity selloff – the biggest since June 11 – was painful, but in isolation it should have been manageable for investors using legacy balanced 60/40 (or risk parity) portfolios. However that was not the case because as BofA’s Hans Mikkelsen writes overnight, what was truly unique about the Wednesday rout is that as stocks cratered, Treasury yields rose and gold dropped, or as he puts it “everything was on sale”, in other words, it was a perfect liquidation.

Such a selloff is so against the core tenets of conventional market flows, that this combination – of stocks, bonds and gold down on the same day – only happened twice in market history – on March 11 and March 18th – during the liquidity crisis where nearly all assets where liquidated as risk-parity funds were hammered.

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