Is It Safe?
If anyone has seen the Marathon Man, a classic thriller from the 1970’s, they will never forget the torture scene where Laurence Olivier as the former Nazi war criminal, Christian Szell, tortures “Babe”, played by Dustin Hoffman, with dental instruments while repeatedly asking him the question…
“Is it safe?”
It is arguably one of the most uncomfortable scenes to watch in history of cinema, and for those of you who either missed it, or who are otherwise unaware of this classic movie, it is a “must see”, though not for the “faint of heart”.
A couple of weeks ago, during the time of the Ebola outbreak in the United States, we counseled for a pause in committing new funds to the equity market until the extent of the outbreak was known and under control. We also cited the possible presence of other black swans that could adversely impact the market, such as Russian expansionism, radical Islamic fundamentalism, and the self-governance demonstrations in Hong Kong. Those geopolitical risks remain.
A wider Ebola outbreak in the US, should it have occurred, would have had a more profound and dire economic impact than 9/11. Sachem Rock felt it was prudent at that time, to suspend committing new funds to the market given the level of uncertainty regarding the outbreak, and extreme market volatility that resulted. While the possibility of a widespread Ebola outbreak in the US is slightly lessened, it remains possible due to the exploding epidemic in Africa, and the lack of travel restrictions and/or strict quarantine protocols for the US.
While the outbreak in the US has been now eliminated according to US government officials, and Sachem Rock has resumed committing new funds to the market, a Black Swan event, is still a daily possibility. We have even identified a new possible Black Swan event, as broader, more frequent attacks by hackers are unleashed on individuals, corporations, and governments worldwide.
We continue to counsel clients to keep adequate, if not aggressive downside hedges in place. The world is a “different place” than it was pre 9/11, and significant volatility could arise any given morning. We feel compelled to remind our clients of this frequently, especially as the markets march toward new all time highs, so they adequately understand the level of “risk” and volatility inherent in today’s worldwide equity markets.
Despite the possible presence of Black Swans, Sachem Rock continues to see more signs of a renaissance of the US economy. An accelerating US economy would help lead the worldwide economy, especially Europe, out of its current malaise, as it has consistently over the last 70 years.
Risks to our optimism remain, however; and we cannot affirmatively and conclusively answer… yes, it is safe.