In 2007, Nassim Taleb published his best-selling book “”The Black Swan: The Impact of the Highly Improbable.”” Taleb contends that banks and trading firms are very vulnerable to hazardous Black Swan events and are exposed to losses beyond those that are predicted by their defective financial models. This proved to be right on the mark as one year later, the financial system almost collapsed due to poor financial models that predicted real estate prices would go up forever.
The Global Bear Market has Reached US Soil
You are probably aware that the US markets are off to their worst start in recorded history. However, many media commentators are bear market deniers and believe that there isn't a bear market at all. Stocks will go up forever. If there is a correction, deniers believe that the Fed will just restart its quantitative easing programs, and stocks will continue their ascent to infinity.
I'm sorry to tell you that if you look at the data, the global financial markets are already in a deep bear market, and the world central banks have been ineffective in printing their economies out of recession. Today, I believe that the US is being pulled down by international forces beyond our control. Therefore, the US economy is likely headed for recession in 2016. Let's take a quick look around the world to see the carnage.
The Dichotomy of the Dow
As of Friday's close, the Dow Jones Industrial Average was down 2.5% for the year to date. In 2015, it has traded in a narrow range and has been pretty much a sideways move thus far. However upon closer inspection, its individual components are acting very strangely. The bottom third of the Dow is down 9%+ for the year with 9 stocks down over 14%. With global growth slowing in China and Europe, it is no surprise that industrials, materials and energy stocks are at the bottom of the barrel. On the other hand, the top 8 performing stocks are up 9%+ with 8 stocks up double digits. Healthcare, consumer discretionary and technology sectors are holding up the boat. This is a very bizarre situation and one I can't recall ever seeing before.
What a Greek bankruptcy means to your investment portfolio
A potential Greek bankruptcy has dominated the headlines over the past couple of weeks and this Sunday is a crucial referendum to decide their fate. The Greek PM Alexis Tsipras today urged its citizens to reject an international bailout deal. Many economists and investors are now expecting a bankruptcy in the near term. The big question for investors is: what does a Greek bankruptcy mean to my investment portfolio?
Follow the Loser: The Abnormal Behavior of Central Bankers
In sports, business or most avenues of life, people are encouraged to learn, imitate or follow the winners. In golf, we want to learn from Rory Mcllroy, Adam Scott or Phil Mickelson. In tennis, we want to emulate Novak Djokovic, Roger Federer or Rafael Nadal. To this motivational wisdom of following the winners, there is one exception, however. Central bankers seem to like to follow the loser.
Quantitative Easing (“QE”), creating money to buy bonds issued by the government, was first used by the Bank of Japan in the early part of the 2000’s. Japan was once known as the land of technological and engineering marvels, but more recently it has become known as one of the worst-managed economies in the world. The lost decades of the 1990’s/2000’s have extended into the 21st century, with subpar economic growth, Fukushima radiation out of control and a declining population amongst the list of negative trends.
Is Fed Chair Janet Yellen Tapering Fast Enough?
Back in August, I gave you “3 Reason Not to Fear the Taper” because I didn't feel that the Fed reducing bond purchases would hurt the market. While the taper hasn't been on for long, US stock market indices are trading near all-time highs which confirms my call. Today I wonder aloud, “Is the Fed tapering fast enough?”