This, 100 percent. Falling into the narrative fallacy trap about events makes them seem so obvious in retrospect. If something slaps down the equity and fixed income markets in 2015, it will probably be merely tangential to any of the items suggested, or possibly not on this list at all.
Does anyone remember the Subprime Crisis of Late 2007? Sure, it seems linked to the Bear Stearns / Lehman failures (pooled debt securities), but understanding what was happening during the Subprime Crisis did not directly uncover the ultimate “other shoe” when the stuff hit the fan with the banks in September 2008.
I remember working in the industry during the tech bubble implosion, the September 11th attacks and the recession in the early part of the last decade. At the time, nobody saw the precipitating events coming. In fact, I can’t remember any sustained market downturn where the factors causing the downturn were widely understood and discussed by the stakeholders involved – and I’m talking about regular investment people here, not some insiders with advance knowledge of a trade or market imbalance which was about to turn nasty.
I mean as recently as October the stock market was down 10% and people were falling over themselves to justify why it happened with all sorts of bearish talk. Then the market quickly recovered to record highs and everybody forgot what they just said. Or at least that’s how the financial media makes it seem.
Take oil also. I don’t remember reading too many forecasts in the first half of this year saying it was likely that the crude price would drop by over 30% but once it happened there were lots of articles explaining why it was inevitably so. I’ve seen a few articles recently suggesting brent might go sub-$40 too. Where were these geniuses back in May?
True, and I buy into the whole talebian point of view.
But at the same time your examples ignore the Asian contagion, Argentina Default, 2009 crisis and European Crisis which were all predicatble. I worked first hand with an economist at my last job that had hard proof of calling each of those crisis both on time and in concrete terms (except 2009). So there is a bit of a mix that people tend to ignore. People say the 2009 crisis was black swanish, but yet there are managers that called it to a T and profited handsomely off of it. Always helpful to be on the lookout instead of cruising forward with blinders on.
Since I work on the Commodity side of things I will try to give some perspective…
Commodity prices across the board are expected to remain suppressed. Producers will keep producing, oil companies that plan to stop production run the risk of a competitor picking up the slack. Incumbents will just need to find a way to cut costs.
This bodes well for a number of sectors…the food industry, transportation sector (excluding oil transports) just to name two.
Recent retail sales numbers have shown that the middle class is holding on to what they have and spending less on what they really don’t need.
I don’t see any fiscal policy severly affecting any of our major markets (I solely focus on North America) …any changes we may have October again…down one month…right back up the next.
For myself I am looking at Consumer Staples and event driven equities (TASR and DGLY, for example)
I feel it is going to be a year of just picking your battles…hopefully you choose the right one.
I’ll tell you he had a firm wide reputation as an oracle. But he died of a stroke so he didn’t get to retire. He was the only economist I’ve ever met that would take clear stances and I’ve never seen someone be so right so often. It really was uncanny. I actually turned down a much better offer to stay on and continue working with him while I was there because of the opportunity to learn from him. Guy had a real unmistakeable gift.
That being said, these things are clearly predictable. That doesn’t mean it’s common or easy, but it is possible. 2009 didn’t happen randomly, even Taleb stated that it wasn’t a “black swan” because it was predictable. Sovereign events caused by poor underlying economics are no more an unpredictable fluke than nfl players going bankrupt from gross mismanagement is a black swan event. Sure, the timing is truly hard to get but if you’re investing amd not even surveying the global macro landscape that doesn’t make sense to me at all.
The timing is by far the hardest thing to get. By far. As the saying goes, the market can be irrational longer than you can stay solvent. That’s why I can’t stand most economists who claim they predicted this or that. I heard one of them say he predicted the housing crisis since 2002. Good luck making money on that if you acted upon that in 2002. Being the first one to call an event does not (and most likely does not) guarantee making money on that call. I’ve seen so many people in my career be right but still find a way to not make money or worse, lose a lot of it despite being right.
I’m not saying your guy wasn’t legit. All I’m saying is that I judge people in the investment industry by the amount of money they make, not the percentage of good calls they make. This is a black and white industry. Your P&L speaks for itself. And if you’re good at making calls, at some point you will go on your own or have other people notice you and give you their money. Knowing when to pull the trigger is a skill in and of itself.
Yeah, but his timing was on. I mean, it was well documented within the firm. He was within the risk management team so he didn’t make big trader $$$ but he did save the firm hundreds of millions in documented reallocation. I don’t really want to go into an in depth discussion of his career because it’s simply not anyones business here. But it was legit and there are many men on wall street making more money as bullshit artists that has nothing to do with their abysmal track records. So I don’t really think it’s that black and white at all. And while timing can be difficult you can still position yourself one way or another and watch for signs a call is taking traction. I literally sat there and watched him guide $250B in short duration funds through the European crisis and call nearly every major development correctly from start to finish.
We’ll have to agree to disagree on this one. But I went to cash last Thursday in the 401k so I’ll post updates as the year progresses.
Sure, there were a bunch that I left out, and I agree that these things, to some degree, may have been predictable. I think the problem comes when one has a finite amount of investable dollars, and perhaps ten or twenty of these predictable crises – it’s really very likely going to be one that dominates and becomes the moneymaker – how do you spread your bets around? Because before it was the Asian contagion, there were also ten other things that appeared at the time that they could be “the big one;” within that time period, it turned out that you might have made the most money betting on that one.
I’m not advocating blinders here, in fact, I don’t really have the answer. And I call BS on anyone that claims to have a crystal ball as even benchwarmers have hot streaks. However, I immensely enjoy the productive discourse involved with those trying to develop one’s mind, over the years, to recognize certain patterns or conditions present before some nasty turn for the worse.
To me, this is different than isolating certain things, situations that are almost throwaway to hear fund managers say – “QE Infinity,” “Peripheral Europe,” “Abeonomics,” and so forth. Like, it may very well be that the next crisis will be facilitated by “QE Infinity,” but developing that into a bet takes a whole lot more work. For instance, people had been talking for years about how the Fed had (really since the start of the Greenspan years in 1987) been slowly but surely pursuing a systematic expansionary monetary policy. I remember talking to fund managers in the late 90’s and early 00’s who at the time were talking about “too much liquidity in the system.” So people knew what was going on, generally, but how did one forecast a bet that that excess liquidity would eventually cause glut in say, the subprime market, ultimately leading to security value impairment there? Sure, you could have specifically had that idea in 2002 or 2003 that this would happen, but there might have been ten or twenty plausible avenues that your concept of “excess liquidity” might have translated to, and unless you had specific and intimate knowledge of deal structuring in subprime, it might have been anyone’s guess as to the magnitude of the problem.
Sorry for the long post, but in sum, I’m not saying turn a blind eye at all. All I’m advocating for is (for everyone involved in predictive analytics) humility and a pragmatic viewpoint about the fact that the world around us is a whole lot more unpredictable than it seems at any given point in one’s current perception of events.
^I don’t disagree with the main gist of what you’re saying. I’ve typically been more on the taleb / pure randomness side of the debate, so maybe this is a new fad I’m trying that I’ll end up pulling a 180 on. But in a alot of ways those crises I mentioned were well telegraphed and expected to a certain degree but ignored by most due to issues around timing. The economist I worked with said the thing that had suprised him most throughout his career was how long some of the events took to occur. That his takeaway was that the most difficult thing had been maintaining patience and viewpoint until supporting events began to occur and watching for those signposts. Either way, to me it’s always a worthwhile discussion reasoning through potential trigger points. And you can be aware of the magnitude of the possible threat without worrying about the timing and benefit from keeping your flexible portfolio. Using both the European crisis and the 2009 crisis as examples, neither of those occurred over night. Markets weakened and got volatile and had many false rallies on the way down because many investors had not stopped to analyze the situation and recognize the potential depth of the threat.
Part of what Neryblop said - increased volatility. (However even dead chickens refused to predict anything about interest rates.) I think this market has been too complacent, so any little jolt will increase volatility.
Correction in overvalued “new economy” stocks like BABA, FB, AMZN. Has to happen sometime, right? Right?
Is the increased vol because of tax season or actually increased vol? Lots of stocks on my screen have been moving around, some wildly like +/- 30% but that’s because they are thin and people are window dressing.