At the start of the year 2017, there were hot debates on whether the next global economic recession will start in 2017. The pessimist or the gloom and doom proponents have been happily jumped in to ascertain it will happen in 2017, and predicting in the second half of the year. Their prediction is generally based on the 10 years economic cycle happened in the past. On the other side, the Optimist says it will not happen because history does not necessary repeat itself. The economic leaders like Federal Reserve or bankers have learned enough to improve economy stability.
We have now finished first half of the year 2017, second half of the year is just starting. Will global economic recession happen with the sudden appearance of the black swan? This is perhaps the most concerned issue of most investors. Many reluctant investors are now standing on the sideline with cash on their hands.
Interestingly, Morgan Standley, a leading global financial services firm, predicts that the current bull run can last until 2020. Nevertheless, Adam Parker, Morgan Stanley’s chief U.S. equity strategist admits that it is not easy to be a bull proponent at this moment. We could ascertain that most analysts, commentators, investors are on the pessimist or bear side. Pessimists have proved their arguments comfortably on various fundamental basis, like current high PE level, missed matched corporate earning and market valuation etc. The current bull market is basically driven by animal spirit especially unleashed by post elected US President Donald Trump and it has gone dangerously beyond rational behavior and so the argument goes….
If the above stance is true, we can also comfortably say the black swan will most probably not be appearing by the second half of the year 2017. Because black swan event is basically “hard to predict … beyond the realm of normal expectations in human history … psychological biases which blind people, both individually and collectively, to uncertainty and to a rare event’s massive role in historical affairs … ” as explained by Nassim Nicholas Taleb, the creator of the term and financial professional turned writer. If everyone is expecting it to happen, it will not happen at all.
Sir John Templeton, a prominent investor and philanthropist of the 1900’s coined a famous bull market qoutation saying “Bull markets are born on pessimism, grown on skepticism, mature on optimism, and die on euphoria.” Currently, if every investor is very much concerned about the down turn of the existing bull market, there isn’t anything near to euphoria stage right now. In fact, we are possibly at a stage of moving away from skepticism and will possibly enter the early stage of optimism by the beginning of 2018. Because there were reports saying that many US investors have not yet come out of the negative impact of the previous Great Depression.
By moving away from 2017 if the black swan doesn’t appear, the curse of 10 year economic cycle will be seen as if it has been broken. Optimists would have won the battle then. And this camp will increase its strength, many more will gradually join into this optimistic camp. By then, market investors will have the possibility to rush and push blindly into the euphoria stage.
It sounds like the black swan will not possibly happen in the second half of 2017. But it will possibly happen in 2018 or 2019. It’s all depending on the animal spirit and behavior of the investors, creating the coming of the euphoria stage. By then, black swan will appear suddenly from nowhere. Would you think so?
Disclaimer: The author expresses his view based on his own learning experience for reference only. Readers are advised to use individual assessment to do investment.