What will trigger the next correction?

WSJ 10,20.1987As I was thinking about my 2014 Investment Outlook (watch this space, it will be out shortly), I considered what obvious catalysts might stem the tide of higher equities and saw none. While it was already clear to me that market obstacles need not be foreseeable in advance (think Donald Rumsfeld’s famous “unknown unknowns”), that lack was still a significant factor in my preliminary thinking. Other than the unforeseeable — which seemed limited to me somehow — it looked like clear sailing ahead, despite high market valuations and the need for some correction to clean things out. That is, it looked like clear sailing until I remembered Black Monday: October 19, 1987. Coverage by The Wall Street Journal of that day began simply and powerfully. “The stock market crashed yesterday.”  Continue reading

The Tuned Market

winner_of_the_US_National_lego_comp_2007My two-year old grandson loves his Legos.  As a kid, I loved my Legos. These colorful bricks seem to call to us to create elaborate and complex structures.  They don’t invite simple, clean lines. Sure, once in a while somebody (never a kid) makes a Lego Fenway Park or something like that, but crazy and complex is the norm (not that a Lego Fenway Park isn’t a different sort of crazy). That’s why they’re so much fun.

We love complexity.  It’s why it is so hard for us to employ Occam’s Razor.  We should of course go with the simpler explanation or approach unless and until something more complex offers greater explanatory power. But we don’t.  We want to include our pet political ideas, convoluted conspiracy theories or favored market narratives.  We are ideological through-and-through, and the more complex the better. Continue reading