By definition, something that we can “see coming” is not a black swan event. Like Russia. I realize that “past performance does not necessarily predict future results”, but in my experience, past downside performance is a strong indicator of future downside performance.
Yes, stocks are rallying now. We’re in the phase right after the initial crisis where little is known, and a large range of potential outcomes are (at least in theory) possible. As Justin Mamis put it, we are somewhere on the price/information tradeoff where information is still scarce.
Uncertainty allows pessimists and optimists to make their case until we know more. But as Justin Mamis also puts it, by the time you have all the information, it’s too late. For example, when everything good is known about a stock, it will be fully priced. Conversely, if you wait for every piece of bad news to come out, it will be too late to sell.
Right now, we keep seeing hopeful articles about Russia. This morning, it was China coming to the rescue with Yuan-Ruble swap lines totalling $150 billion — enough for a few weeks of intervention if it plunges again.
Meanwhile, Ex-minister Kudrin warns of ‘full-fledged crisis’ in Russia as the first of probably many banks were bailed out.
What to do
I’m not terribly worried about our own holdings. We own U.S. Treasuries (you will love this story), watch the red line and have an established exit protocol. Still, it is my job to monitor the world at large, and especially of interest is the sentiment of market participants.
As we have seen in the past, crises take time to develop. Right now, anyone who wants to be in the denial phase has plenty to hang on to. It takes time to reach the tipping point, but like I said, we have seen this movie before, and that makes it not a black swan event.
There are two good Bloomberg interviews from last week.
Carl Weinberg from High Frequency Economics. Note Carl has learned from the past not to predict imminent demise.
And for you keeners in the front row, this one with Abdullah II of Jordan is a must-listen.