Email of the day on exaggerated risks
Comment of the Day

January 09 2018

Commentary by Eoin Treacy

Email of the day on exaggerated risks

A very happy new year to you and David. I just watched this TED Talk from October and found it important enough to share. I've passed it on to friends and family because I believe the message is even more important today. As most equity markets seem to be accelerating to the upside, don't you think the downside risks become more pronounced? Would like your thoughts on the talk -  All the best!

Eoin Treacy's view

Happy New Year and thank you for this question which is an important consideration as the cycle matures.

This chart from Pipe Jaffray highlights the fact we are late in the cycle but importantly the cycle is not over.

Margin debt looked like it might have been at a peak back in 2015 when corporate profits had been going sideways for a couple of years. However, it broke out again in January and suggests corporate profits, which is reported with a significant lag, will also break out when next updated. (It should also be noted that both these figures are reported with significant delays, only one is longer than the other).

However, I believe the primary conclusion is that when margin debt is at an all time accelerated high and stock markets accelerate higher, then the potential for an unruly correction increases.   

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