Risk-blind and the great bear market coming

Our son was born in December 1999, three months before the ‘irrationally exuberant’ stock market peak of March 2000.  When he was young, we used to tell him that he was born at the top of the greatest stock market bubble of all time.  Apparently we were mistaken.

Celebrating his 18th birthday last month, we had to change the story:  now he was turning 18 at the peak of the greatest financial bubble of all time.  His short life has now had the distinction of spanning the most destructive and reckless financial era ever.

Lest anyone try to delude themselves that the present run is just excesses in the tech sector, my partner Cory Venable’s chart of the relative strength indicator for the Dow 30 so-called ‘conservative’, dividend paying stock index below, says it all.  With a monthly RSI reading of 93.3 (! on a monthly!) stocks have never been more overbought, and have never lasted so long in the delirious zone.

After both of the last crashes, most kicked themselves for not seeing the warning signs; for ignoring rational metrics, buying and holding with the herd, as they fell into the abyss.

Today if one can’t see the warnings there is no hope that they ever will.  In the infamous words of Queen Elizabeth in November 2008, after falling markets had wiped an estimated £25 million off her personal fortune and triggered The Great Recession worldwide:

“If the problems were so large, why did nobody see it coming.”

The answer, as always:  greed, ignorance and lack of personal discipline.  We’ve been warned.

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