There are three black swans headed your way.
If any one of them alights it could wipe out all of your 2017 gains.
If two come in for a landing the damage could be far worse.
If it’s its three, you’re facing Armageddon.
And four….?
I recently received an email from a long-time reader complaining that he regretted following every negative comment I made over the last eight years.
All of them cost him money. He should have just stayed leveraged long and ignore my entreaties to buy gold or Volatility Index (VXX) calls.
I asked how much he was up, reflected these painful losses.
Answer: 732%.
So he’s complaining about the cost of fire insurance when his house didn’t burn down.
During the 1980’s, Morgan Stanley made several hundred million dollars trading Japanese stocks.
After a blockbuster first half of the decade, profits started to trail off.
So, the firm took all the senior traders off the desk who had grown cautious and replaced them with kids who had never seen a down market.
We made fortunes!
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I made enough money to retire and start my own hedge fund at the tender young age of 37.
Never mind that a couple were promoted to managing directors who then got fired when the worm turned a few years later.
Now reminds me of that time.
So it is timely to review what could bring the party to an end, ring the bell, and pee on our parade.
Did you know that half of the 30 Dow Average stocks are up more than a mind blowing 40% this year?
Here are four black swans potentially headed your way.
1) The Tax Cuts Fails to Show
The president tends to be long on promises, but short on delivery.
Today, Treasury Secretary Steven Mnuchin threatened that stocks would dive if the market didn’t get the tax cuts it was hoping for.
With only 20 working days left in 2017 for Congress, time is running short. Even the first quarter of 2018 will be a stretch.
What does pass is likely to be highly diluted and have no real impact on corporate earnings, especially the Fortune 500, which doesn’t pay taxes anyway.
No tax cut means you would give up the gains of the current tax driven rally that started in August, about 1,500 Dow points, or some 6.5%.
2) Special Investigator Robert Mueller Indicts Donald Trump
Multiple criminal investigations of the president have been going on for six months now and they are not continuing because of a lack of evidence.
More likely, they keep finding MORE evidence, but don’t want to indict until every “i” is dotted and “t” crossed, given the target.
Since my former Marine comrade-at-arms Mueller is running an incredibly tight ship, this one will come totally out of the blue.
An impeachment wouldn’t necessarily hurt the economy or the stock market. It didn’t last time, in 1975.
But it would bring things to a complete halt in congress, including the tax cuts. And then we have the congressional midterm elections.
Yikes!
3) 2018 Tax Loss Selling Kills the Market
This is the most likely black swan, as it requires a simple turning of a page.
What happens when all of the deferred 2017 tax loss selling pours into January, 2018?
If there is enough new equity reallocation for next year to offset it nothing happens.
If there isn’t, look out below.
I’m not saying that ANY of these black swans will actually occur. At this point it is all just one big “thought experiment.”
But if they do, cash will be the “better part of valor,” as Falstaff might have said in Shakespeare’s King Henry the Fourth, Part One.
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