stock_creeper's  Instablog

Don't sweat the Black Swans

Black Swans are unpredictable and are either good or bad. For example, a bad black swan is hurricane Katrina and a good one is the creation of Google. The remainder of this summary will concern negative black swans.

Should you worry about black swans? In disagreement with the book you shouldn’t lose sleep over them, and reacting defensively to black swans can create unnecessary work and hurt your returns. Additionally, many negative black swans are actually ‘good’ when viewed in a different context, notable examples being the 911 terrorist attacks and the 2008 financial incident. Those who completely ignored the black swans or repositioned their investments to exploit them made money. 911 and 2008 financial panic triggered a deep, but brief selloff in stocks before the market roared higher. If you read the doom and gloom headlines, sold your stocks and went into cash you lost. Ignorance pays. An unexpected positive consequence of 911 is the proliferate spending in the form of homeland security, war in Iraq, Libya, and Afghanistan that boosted the economy and stock market following the dotcom meltdown. This terror stimulus continues to this day with no signs of slowing even after Bin laden got killed. You can thank Bin Laden for the stock market and commodities doing so well and the dollar being so weak.

Stocks keep surging because the economy is doing great

What does Greece, Euro, debt ceiling, entitlements, surging commodity prices, pain at the pump, and foreign conflict all have in common? Answer: They are not a big deal in terms of the economy yet they receive a disproportionate amount of coverage from the leftist libertarian blogs. The main stream media such as the newspapers and TV, on the other hand, isn’t covering these stories because they are simply not important. Facebook accounts getting hacked is a bigger story, not job loss or debt. No one cares about those things because recovery is here even if you can’t see it. No job creation, but no problem.

What about debt ceiling? Not gonna happen when treasury yields are so low. We’re still in a low, low rate world of infinite prosperity, wealth creation, risk taking, and liquidity. People are getting richer than ever in as little effort as a few keystrokes. Speculators making money hand over fist with surging gas prices because the economy is booming and rates so low, and foreign conflict is a good excuse for oil & gas prices to keep going up. Conflict in Nigeria? Egypt? Libya? Add another $7 to oil and 30 cents at the pump.

Facebook, Linked, Twitter, and Groupon founders getting richer. Wealth creation can’t be stopped, recovery can’t be stopped, stock market unstoppable. A new world order of shrinking middle class, more debt, foodstamps, blowout growth, record exports , more war, more wiretap, blah blah

Mish Global Economics is right about no inflation. Big Picture says inflation still 1%. I agree.

Greece? Not a big deal.

Palinism is here to stay. Expect constant coverage and whining (by the left) about Palin as the 2012 election nears and continuing coverage for decades to come.

Pro-growth politics and economic policy is here to stay. That means more war, more debt, globalization, open borders, no jobs, etc.

 Pain at the pump? It’s only going to get worse and it won’t hurt the economy whatsoever. Get ready for $5/gas combined with 9% permanent unemployment and mind baffling 1% CPI. It’s two-track inflation that hurts the middle class but makes the market go up.

Short term targets:

Gold $1650

Silver $52

Dow: 13500

Oil: $115

Asset inflation….it ain’t going away