Wednesday, April 03, 2013

Black Swan Prediction Fail

Here is a CNBC article via attempting to predict potential Black Swans that will torpedo investment markets.  There is only one problem:  you can't predict a Black Swan, hence the name.  If you could predict a Black Swan, it's not a Black Swan.

Two of the predictions - Housing Bubble 2.0 and the Recovery That Isn't - don't even make sense.   The economic recovery is real - it's time to discuss another topic.  The Housing Bubble 2.0 is nonsense.  Home prices, nationally, bottomed a year ago, and prices have increased 10.2% over the past year.  Here is the key point that makes bubble talk silly:  home prices are still 26% below their peak.  The housing recovery is just getting started and it will pull the economy along with it.  Talk to me when home prices are 30% above their previous peak.

The only one of the three points I agree with is Risky Business, but not as a potential Black Swan.  Low rates are driving investors into buying risky investments in an attempt to capture yield.  Some of these investments aren't going to perform as anticipated.  This isn't a Black Swan event, it's common sense.  High yield investments are high yield for a reason.

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