The Mega Bubble

As you know from previous posts, I am not one to put any credibility into forecasting, which is why I like to poke fun at those who, with serious faces, are trying to predict presidential outcomes or worse the closing price of the Dow on the last trading day of the year.

Joining this ever growing list of Wall Street fortune tellers can put you (temporarily) into the lime light because your forecast was close (lucky guess). This can present a real problem because if you then keep reading about your successful forecast, you may actually believe that you have special abilities; that is until reality strikes with your next guess being so far off that you are quickly removed from the “have to know” list.

I was reminded of that when I read Paul Farrell’s latest piece “Megabubble waiting for new president in 2009.” While I actually agree with some of his assessments, he goes way out on a limb by saying:

Flash forward: Real life, Washington, new leaders, a new Congress, old wizardry. Be forewarned: No matter who’s elected president, America will soon see a massive statistical curtain pulled back, exposing a con game of historic proportions. And when that happens, you and I will suffer another ear-splitting global meltdown, bigger than today’s housing-credit crisis, dragging us deep into a recession and bear market for years.

Ok, that’s a wild guess, although I can see that we may be facing a bear market far worse than the last one. To the casual reader, his entire story may sound pretty frightening, so remember, it’s just one man’s opinion. If he really believes in that forecast, however, I have to wonder what he might do with his “lazy portfolios” (Buy and Hold, of course), which are being promoted as the equivalent of motherhood and apple pie?

A “deep recession and a bear market for years” will not bode well for any portfolio that holds bullish assets. If his forecast comes to pass, I will report about the various consequences.

I have to admit that in my advisor practice, I always try to cover my back (investment wise) to expect unexpected events. As history has shown, those “black swans” have the ability to give your portfolio such a serious haircut that years of accumulated profits can vanish in a hurry along with a good portion of your principal.

This view may be based on my overly cautious nature but, given the economic environment we’re likely to be in for years, being prepared and ready to make a quick exit to the sidelines may prove to be the soundest of all investment decisions. What’s the alternative? Play ostrich and go down with the sinking ship?

I think not and lucky for me, even Oscar Wilde seemed to agree when he said:

“To expect the unexpected shows a thoroughly modern intellect.”

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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