Wall Street contrarian David Woo: Possible value-at-risk shock brings with it a very difficult environment for Apple & Co

David Woo predicted Trump election 2016
Ukraine war brings high risk
Environment very difficult for US equities

David Woo has built a reputation in the financial industry as an investment expert with a keen nose. On the website of his global forum on business, politics and markets, David Woo Unbound, the star strategist states that he was the first Wall Street analyst to start reporting on the then new Bitcoin in 2013. However, Woo may have gained more notoriety when he predicted the outcome of the US presidential election in 2016 – namely the victory of Donald Trump.

The economist has now spoken to Bloomberg about current global events such as the Ukraine war and advised investors to exercise caution. In his opinion, the current environment is very dangerous and offers only very limited investment opportunities.

Is there another taper tantrum?

In particular, the former Bank of America analyst fears the consequences of a renewed taper tantrum, which led to skyrocketing yields on US government bonds in 2013 and triggered a market panic of growing instability. As a reminder, in 2013 the then Fed chairman Ben Bernanke announced that the US Federal Reserve would in future reduce its bond runs, which it had expanded in the wake of the 2008 financial crisis. After the taper tantrum, a wide variety of asset classes came under pressure.

Woo sees a similar risk in the current environment, although he fears that there could even be a value-at-risk shock. This is indicated in particular by the high volatility across various asset classes, which was driven to a new peak by the Russian invasion of Ukraine. Bloomberg explains that high volatility often leads to more selling as money managers are forced to dump various assets from their portfolios to accommodate their complex risk strategies.

Value at risk is increasing

Woo currently sees this danger, as he revealed to the news agency: “Venture parity funds are sitting on trillions of dollars in assets. If stocks and bonds fall, these funds will experience a massive increase in value-at-risk. That will force them to do so “to capitulate and begin exiting all asset classes in which they are invested”.

Difficult environment for Apple & Co.

The former Barclays strategist assumes that the portfolios are likely to develop from US stocks in the direction of cash. Woo warns of this: “Too many people believe that US stocks will be a safe haven”. However, the Ukraine war has led to an increased division between the western world, which also includes the USA, and China and Russia on the other side. In such a difficult environment, tech stocks such as Apple or Google’s parent Alphabet, in particular, are likely to have a hard time, as the war is likely to cost international companies important export markets and result in supply bottlenecks.

In principle, according to Woo, the current conflict is like a second Cold War, which is costing the USA its technological lead in international comparison and could also affect the dominance of the US dollar in the global financial system.

Escape to China Bonds?

In view of this difficult situation, which investments could market participants save themselves with? Woo sees an opportunity in Chinese government bonds in particular, since the People’s Republic is not struggling with the same inflationary issues as other countries. For example, China’s central bank is more willing to turn on the money supply should the economic outlook deteriorate.

The Wall Street prophet’s greatest concern, however, is the fact that the markets are not only struggling with the unprecedented corona pandemic, but that a second supply shock will follow seamlessly with the Ukraine war: “I’m so worried because “Covid was the first negative supply shock and now we’re getting the second negative supply shock. The world hasn’t had to deal with a single negative supply shock in the last 20 years, let alone two in a row,” Woo told Bloomberg.

Editorial office finanzen.net

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