Sunday, November 26, 2017

Useful Idiots And Black Swan Events

1987 crash risk, Y2K Tech bubble risk, 2007 complacency, 2008 leverage, 2011 rolloff risk, 2014 Oil risk, 2015 China risk, 2016 Fed rate hike risk. Goldman can't think of a single "trigger" that could cause them to advise lower client fund flow. Go figure...

But first, newfound tech guru, Jose Canseco, offers prescient insights on Bitcoin:

"Eventually every moron will understand Bitcoin and thereby bid it up to $10k"


No surprise, Goldman Sachs is now hedging on this past week's glue-sniffing 2018 prediction. Which gets us to the title of this blog post. Where would Wall Street be without "Black Swan events" to cover their asinine predictions? Because whenever they're caught out telling clients to go balls deep at the end of the cycle, they can always just point to the "unforeseen" spark that happened to land on the pile of dynamite they just sold to clients. In other words, it's The Big Short all over again. 

"When it comes to the most influential investment bank in the world, Goldman Sachs, its 2018 outlook is borderline euphoric despite the bank’s own explicit admission that valuations have never been higher"

Goldman is confident that, absent a shock, “a bear market is unlikely” despite rising risks

Economic cycles and equity bull markets do not generally die of old age. Our work on bear markets shows that major drawdowns require triggers"

What was the trigger in the Y2K recession? It was the bursting of the excess valuation bubble. But this time, valuations have never been higher, so we can assume that won't happen again. And what was the "trigger" in 2008? It was the bursting of the excessive leverage bubble, but since leverage has never been higher, we can take that scenario off the table as well.

Here is the real reason why Goldman upped their 2018 forecast - it's because the IPO muppet show is ending:

"Yet even in admitting that a correction (or bear market) is long overdue, Goldman’s advice to clients is simple: don’t sell"

Goldman then makes a more relevant point, namely that any initial crash will likely see a sharp rebound in the early days of the bear market:

"We also find that nearly all bear markets start with a correction, followed by a powerful bounce that offers investors an opportunity to sell later, assuming of course that they recognise this is an opportunity to sell rather than buy."

Sell the bounce. Check. 

"While equity markets are expensive relative to history, so are most asset classes which means they all are vulnerable to falling together, leaving few places to hide"

Keep in mind, this is a "bullish" argument for not selling. And as far as stock market sectors, I agree 100%. There's only one more place for money to go - back to t-bonds, because when deflation goes deeply negative, long bond yields will be far too high...

The stocks holding this shit show together are not the safest ones, they're the riskiest ones...