Loading ...Predictions are difficult to make, especially if they’re about the future.
-Neils Bohr, physicist
-Neils Bohr, physicist
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Or, as Nassim Taleb argues, we form our guesses about the future (and associated risks) based upon the scientific notion of normal distributions but the really impactful events in life are those that lay outside these ‘bell curve’ estimates and create what he termed ‘Black Swan Events’. Any number of Black Swan Events could send the variables that make up the complex systems discussed here sideways in totally unexpected ways.
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It is a lot more involved than that. In the long term the primary drivers of the uptrend are incessant monetary inflation and the so-called “survivor bias” – any company the market cap of which falls below the applicable threshold in a given quarter is simply chucked out of the index and replaced by the nearest one that has overtaken it in terms of market cap.
In the short term, rotation effects do become a noticeable feature, but none of this matters if and when a really important trendline or lateral support line breaks at the end of a bubble. Correlations tend to move toward 1 during crash waves (mass-correlated hyper-volatile illiquidity events). There is no “rotation” during a crash, there is only panic and margin clerks.
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