Six Sigma Probabilities

“The black swan for me would be for us to emerge out of this unscathed and return to normalcy,” Taleb said. Compared with the Great Depression, this crisis is “very different, and it requires much more drastic action.”

Today’s market close set more new records.  We’ve had a bear market that’s just run itself long enough to become the worst bear market on record with one exception.  That one exception is the one that started on Black Friday, 1929.  The second one, until today, was the bear market in 1937. There’s only been one trend recently in all of the capital markets and that is down.  No one knows at this point where the bottom is and how long we’ll stay there.

These kinds of losses and numbers usually bring about what is called a Bear Rally.  A Bear Rally occurs about the time investors expect the negative momentum to end.  Technical traders would expect this any day now.  Well, actually they’ve been expecting it any week now and any month now.  They’re still looking for it.  First we heard that the market was ‘oversold’ and now we’re hearing that there’s a lot of money (estimates of like $3 trillion) just waiting for the good news to get back in. The deal is that recently we’re not even seeing the hint of bounce.  It’s now a black swan market.

I have a suspicion that is why our President seems to want to replace Mad Money Cramer as the tipster-in-chief.  Cramer just criticizes him (which POTUS hates) and at the moment  Cramer is at a loss for any technical explanation. So first, POTUS told us that there were a lot of bargains at there because of the “profits and earnings ratios” (sic).  Now, in a NY Times interview, he tells us to not put our money in the mattress.

What I don’t think people should do is suddenly stuff money in their mattresses and pull back completely from spending. I don’t think that people should be fearful about our future. I don’t think that people should suddenly mistrust all of our financial institutions because the overwhelming majority of them actually have managed things reasonably well. But I think that coming out of this crisis what you’re going to see is, you know, a return to the fundamentals – hard work, investing for reasonable returns over time, saving steadily for your kids’ college education and for your retirement. All of us, thinking about our purchases and making sure that we’re taking care of the necessities before we go after the luxuries. And I think that’s true not only for individual families but I think that’s going to be true for government as well. And if we take those steps, if we return to the fundamentals, if we go back to that ad that used to run, where they say, you know, ‘we earn money the old fashioned way’ — or what is it?

So, now we have  a lecture on budgeting and spending our money on fundamentals and not luxuries while the omnibus spending bill will just get signed without any significant review and revision.  Evidently, what is good for the people, is not what they should expect from their government.  I’m clearly on record supporting a huge stimulus bill.  In fact, I’ve said that the last stimulus bill was not big enough in TERMS of stimulus and size.  The President would be well-advised to review that last paragraph and consider what he’s due to sign shortly.  The forecast of job creation in the stimulus bill was based on an average 8% unemployment rate.  We just achieved a higher rate than that last month and the increasing downward trend is not expected to stop.  The current budget bill would provide an opportunity to transfer funds for earmarks into spending that could possibly address the shortcomings in the stimulus bill.

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