Many financial experts have been worried about the dangers of derivatives for years, and you can add legendary money manager Mark Mobius to the list.
“Market volatility is a reality of today,” the executive chairman of Templeton Asset Management writes on Business Insider. “One of the reasons we have — and are likely to continue to see — this level of volatility is because of the occasional misuse of derivatives.”
That doesn’t mean there’s no place for derivatives. “If understood and used appropriately, they can be used by funds as tools to hedge or mitigate risk,” Mobius explains.
(Templeton file photo)
“What I am most concerned about is the use of derivatives as speculative tools or derivatives that involve high levels of leverage.” That’s when the risk can turn excessive, he says.
“Misusing these financial instruments contributed significantly to the global financial crisis in 2008, and they continue to be used today.” And that means continued volatility, Mobius says.
“Add to that the unforeseen and unpredictable events that occur across the world, together with an even more interconnected global marketplace, and we are likely to have more sharp and sudden moves in the market.”
Some worry about the possibility of a sudden move down by U.S. stocks. Investment analyst Mark Hulbert is one of them.
“The sentiment data no longer provide strong contrarian support for a bull market,” he writes in Barron’s. “And a number of the sentiment indexes are, or very close to, flashing outright sell signals.”
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