Trump proves that people will believe ANYTHING and ANYONE. As long as they are told what they need to hear.
What we saw in this cycle was a long reflation phase followed by a long deflation phase ending in 2016. Followed by a shorter repeat of the same pattern called "MAGA". It's only "real" if you think another con man is about to get imminently elected. As we see in the bottom pane (circled), this ain't 2016.
Sadly, there is only so much useful carbon to be conned, by known felons.
"Contrary to popular belief, market crashes are not random, they are a function of how many people can be conned into drinking the Kool-Aid. In this case, record numbers"
As we see from this description of a black swan event, it all comes down to what does an Idiocracy always expect from rampant stupidity?
"A black swan is an unpredictable event that is beyond what is normally expected of a situation and has potentially severe consequences. Black swan events are characterized by their extreme rarity, their severe impact, and the practice of explaining widespread failure to predict them, as simple folly, in hindsight."
How about in foresight? Just the perma-bears, who like a stopped watch - are right twice a day. As long as it's a gold watch for my retirement, I'm good.
In order for crashes to be random and "unpredictable", two statistical conditions must be met. First off, they must be "extremely rare", and secondly they must not be correlated to any known variables. On the first point, crashes are indeed extremely rare on a daily timeframe. The odds of a crash on any given day is de minimis. On a yearly timeframe however, crashes are a regular occurrence. And to a long term investor, crashes are inevitable. Which is not the definition of rare. On the second point, in order to be statistically random and "unpredictable", one must believe that there are no known variables that are correlated to a crash, which means the economy, corporate profits, debt, leverage, breadth, geopolitics, liquidity, sentiment, Fed policy etc. None of these things can be correlated to a crash for it to be a "random" event. In a world of a million variables and no way to control for causation, it's very easy for Nassim Taleb to assume that all variables are independent. Just make that assumption, and move on to writing the next chapter - the one where the over-confident trader blows himself up by onboarding too much leverage at the end of the cycle. I'm sensing a disconnect somewhere.
The Black Swan theory, when applied to markets, directly contradicts the Minsky Financial Instability hypothesis, which posits that as expansions age, financial markets become more and more unstable.
When Taleb fabricated the term "Black swan event", Wall Street handed his books out like candy. Finally a PhD with non-existent commonsense to absolve us of all accountability. Let's go sell some toxic subprime CDOs with a shelf life measured in weeks and laugh at our muppet clients behind their backs. Then, on the other side of the meltdown we created, we'll take our payout via bailout when Goldman Sachs alum Hank Paulson writes us the check from the Treasury Department.
Corrupt bullshit aside, where this all gets interesting is in the year over year comparison of risk vis-a-vis last year. This time last year, the economy was booming, stock buybacks were record high, business confidence was multi-decade high, consumer confidence was highest in two decades. Then suddenly, stocks crashed -20% in the fourth quarter. Why? Fed rate hikes were blamed. And yet, everyone knew the Fed was tightening, it wasn't some unknown event.
Fast forward one year later, and everything has taken a turn for the worse: All of last year's positive factors are now imploding, offset by the sole fact that the Fed is now easing.
Critical factors that have deteriorated year over year:
U.S. China Trade war escalation
Brexit clusterfuck
Inverted yield curve
Earnings recession
Declining stock buybacks
Decade low CEO confidence
Decade high CEO (insider) selling
Imminent global recession
Stalling U.S. growth
Imploded Liquidity/Overnight repo implosion
Deteriorating breadth
Recession stock leadership
Presidential impeachment proceedings
And yet, the burden of proof is still on the bears. Why? Because the Dow and S&P are near all time highs. That's the only reason. Nothing else matters to investors. Two indices artificially inflated by index alchemy and human history's largest dumb money bubble.
Is it random that stocks tend to peak ahead of the central bank meetings? No.
"More heroin please"
This analyst is seeing similarities to 1987.
I don't find his charts overly compelling, but I find it interesting that someone else is seeing epic crash risk while the rest of the financial media is anticipating imminent new market highs.
The trade war damaged Dow tells the tale. Now getting double shellacked by Boeing due to the 737 Max fiasco. The Dow is stalled at the same level as last year, exhibiting three lower highs, and three higher lows. Each run higher attended by fewer new highs (lower pane). The most recent highs are nested three wave retracements.
Which sets up a third wave down.
Same idea on the Nasdaq. Third wave or head and shoulders top - same end result.
Momentum Tech is deja vu of last year:
In other words, take out the handful of recession stocks pushing up the S&P, and a clearer picture of risk emerges beneath the passively indexed surface
The good news for bulls is that they will finally get their 2019 bailout. Note the complacency lower pane despite the massive increase in risk relative to one year ago:
