2008 was a “Black Swan” event.
The Dot Com bubble was a “Black Swan” event.
The pandemic really was a Black Swan event, and the market only dipped about 25%.
Compared to 55% and 47% during the 08 and 00 bear market.
Yet, investors don’t seem to think that will happen again.
I was on a consulting call about a new Artificial Intelligence platform that would back test your “theme.”
There was only one problem.
The back test, which was static meaning the stocks didn’t change, only went back to 2016.
And when I brought up the desire to add a variety of periods to back test through, they gave me a lot of push back.
“What is beneficial about back testing in a 2008 environment when that was a Black Swan event?”
Those were his exact words.
If you agree, then this next section is a must read.
If you, like me, completely disagree, then please read on for my current market update.
Let’s dive in.
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It’s Different this Time…
That’s the four most dangerous words in investing, quoted by investors all the time.
It’s dangerous because it almost never is true.
And when you start hearing everyone say it is different this time, that previous bear markets were “Black Swan” events, and that those periods no longer matter, it’s time to pay attention.
Now, it is true.
Major indexes such as the Nasdaq 100, the Dow Jones Industrial Average and S&P 500 all hit new highs this week.
Some were new all-time highs, while the S&P was a new 52-week high for now.
The market dipped since July, then rallied strongly these last couple of weeks.
So, I can see why everyone is jumping on the renewed bull market band wagon – this market is roaring.
I play both sides, with bullish and bearish trades. Technically, I don’t have a dog in the fight.
But, I have been bearish as the Federal Reserve went to war against inflation.
And I still am.
I 100% believe this will end badly. “Black Swan” event type badly.
I just don’t know when.
History May Not Repeat, but It Often Rhymes
I always liked this take on the market and history.
When I was on my consulting call, he was talking about how the types of technologies and companies today did not exist in 2008 or 2000. There was no artificial intelligence boom, no crypto assets, and so on.
He was hooked on the fact that because there were different companies and different trends, we were not set to repeat history.
And he is probably right, it won’t be an exact replica. But my caution for him, and for all of you, is that history often rhymes.
It may not be artificial intelligence, in 2000, it was the internet.
It may not be inflation or interest rates, but in 2008, it was credit default swaps (sounds a bit complicated) tied to mortgages.
I don’t know what it will be called, or what will be the tipping point.
All I know, is that the Fed still has rates elevated.
In modern history, they have not accomplished a so-called soft landing yet.
I’m not counting on one now either.
Regards,
Chad Shoop, CMT
Editor, Bank It or Tank It ELITE