December 11, 2019

Black Swan season

.By John Dunkelgrün

My friends and family call me an eternal optimist. Some even call me dangerously optimistic. While I don’t agree with the latter classification, I know I’ve been optimistic all my life. It has helped me get through very difficult situations and especially in the last few years with the growth of my modest investment portfolio.

However, recently I have been feeling uneasy about the world economy in general and the markets in particular. What worries me is not the longest expansion of the world economy ever, nor the oldest bull market on record. It is more the result of the following pebbles in my shoes that urge me to tread carefully:

  • The unpredictability of President Trump’s policies. There is a real chance that a moment will come when he will be impeached and/or sent to jail. That would give the markets a big negative shock.
  • The United States are building an unbearable mountain of debt. Chickens will eventually come home to ro.
  • This year’s budget deficit in the US is worse than the most pessimistic economists expected
  • The tsunami of investments that President Trump promised as a result of his uneven tax cut has not materialised[
  • Profits of the large corporations, which fuelled the stock markets are weakening.
  • Revenue growth in the FAANG club of companies is weakening.
  • The US trade war with China.
  • Growing tension in the South China Sea and between China and Taiwan.
  • The time may come when China decides its loss of control and face due to the continuing mass protests is worse than the fall-out of abrogating the deal with Britain about Hong Kong’s special stat.
  • The tension around the Gulf of Hormuz and the threat of hot conflict with Iran.
  • Possible tension and strife caused by food shortages due to climate change.
  • Brexit and the collapse of normal democracy in Britain. Great Britain breaking up into three entities.
  • The shift towards populist rightwing politics in countries like Poland, Hungary, Brazil, and Australia.
  • The possibility of a failure of Italy. Its economy is so big, the EU possibly wouldn’t survive this disaster in its current form.
  • The risk of massive bankruptcies among China’s banks and big government-owned companies.

Perhaps all this is a false alarm and maybe the decline in profits and revenue growth is just a short blip, but I feel more uneasy about it by the day. The time seems ripe for a mega Black Swan (thank you Mr. Taleb) and sometimes it is better to lock in one’s profits.

If you have time of life, you can always come back when the tension is out of the air. And if you don’t, what does it matter?

Comments are closed.