You may recognize this lovely lady for screaming "what did you say?" as children in South Park, Colorado board the bus in the morning.A few readers asked what Mohamed El-Erian meant when he said "If world goes into recession, you want a liquid market. We think of recession as a risk under our ‘fat-tail’ insurance."
This is a little dense and not that easy to explain. You can click here to get the Wikipedia definition of fat tail. You an also click here to read a thorough definition left by a reader. Now that you are back I can tell you how I take his comment but can't vouch for being correct. He says that he expects a soft landing in the US, putting a lot of faith in the Fed.
Right or wrong he believes a soft landing is coming. He can probably assemble an argument with data of reasonable probabilities that lead him to this conclusion. The fat tail comment implies, to me anyway, that just because his analysis and conclusion says soft landing he still allows for the chance of a recession coming anyway and is either hedged a little in the fund's allocation or is ready to quickly makes changes in case the result falls outside his analysis but within his fat tail, that is a recession and not a soft landing.
I think I'll have some coffee now.
2 comments:
Recession or no, it looks like the market is getting close to an "intermediate" peak. The sentiment models/indicators I watch (sentimentrader.com) are beginning signal an overbought market. This doesn't mean a decline is imminent, but any further gains will be tough sledding. I believe it's time to start taking money off the table.
Second that Tom K. My cycle work says the same, with a probable secondary low in November. I expect a ST consolidation here. The internals after consolidation will tell me whether an attempt at a new high will take place pre-election or not. Regardless I would not place any new longs right now unless you are looking at very specific sectors and situations.
Mark
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