June 27, 2016, 4:15pm EST

Over the past two trading days, we’re seeing the “risk-off” flow of global capital that we saw through the early stages of the global financial crisis.

For a long time, Wall Street sold us on the idea of sector and geographic diversification for stocks. That abruptly ended in 2008-2009. It was clear that in a global crisis, the correlations of sectors, geographies and many asset classes went to 1 (i.e. almost everything went down–a few things went up).

Our table below gives some perspective on how the swings in global risk appetite have affected financial markets since the onset of the financial crisis in 2008.

In a sense, the risk trade is an easy one to understand. When the world looks like a scary place, people pull back and look for protection. They pull money out of virtually everything, including banks, and plow money into the U.S. dollar, U.S. Treasurys and gold (the safest parking place for money in the world, on a relative basis).

At the depths of the global financial and economic crisis, there was a clear shift in investor focus, away from “return ON capital” toward one of “return OF capital.” Then, as sentiment improved about the outlook, people started taking on more risk, and that capital flow reversed. But with each economic threat that has bubbled up since, we’ve seen this risk-off dynamic quickly emerge again.

Two trading days following the Brexit vote, the market behavior is clearly back in the risk-off phase. The question is: Are we back into the risk-on/risk-off seesaw in markets that we dealt with for several years coming out of the worst part of the crisis?

As we said, there are huge differences between now and 2008. When Lehman failed, global credit froze. Today financial conditions globally have tightened a bit, but nothing remotely near the post-Lehman fallout. Most importantly, as we’ve said, we had no idea how policy makers might respond and how far they might go. Now we know, they will “do whatever it takes.”

When was the last time we had a huge sentiment shock for global financial markets and for the global economy? It was only a year ago, in Greece. The Greek people voted NO against more austerity and more loss of sovereignty to their European neighbors (namely Germany). That vote too, shocked the world. But all of the draconian outcomes for Greece, which were being threatened, with such a vote, didn’t transpire. Greece and Europe compromised.

Bottom line (and something to keep in mind): A bad outcome for anyone, at this stage in the global economic recovery, is a bad outcome for everyone.

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