"Safe" assets are at risk of turning dangerous.
The major risk in global financial markets right now is that traditional safe-haven assets in the U.S. such as Treasuries are expensive, and that creates the danger that global liquidity flows out of the country at a rapid pace, CrossBorder Capital wrote in a report.
Too many investors are focused on risks from developed-market central banks unwinding their quantitative-easing policies this year. "Instead, we put far more weight on the threat from a too rapid reversal of cross-border capital flows," the report said. "The asset bubbles are migrating eastward."
The worries for 2018 include a Chinese economy that exceeds too-pessimistic consensus expectations, weaker global bonds and a stronger euro. The latest liquidity data show a boom in Europe, Asia accelerating and improving, and the U.S. with a "subpar outlook," CrossBorder said, and that's moving capital into non-U.S. markets from the U.S. Also, market volatility has a positive link to the rapidity with which global liquidity leaves the U.S., "much like 1987."