Twisters and Triggers

Twisters and Triggers

January 4, 2022

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On a warm Friday night this past December, dozens of tornadoes touched down across multiple states, including one massive twister that stayed on the ground a record-breaking 223 miles, wreaking death and destruction across its path.

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Meteorologists knew in advance that weather conditions were ripe for tornadoes, but they lacked the technology to predict whether or not any would actually form, and if so, the extent of their power.

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While we can identify the conditions that lead to tornadoes, we still don't know why sometimes they happen and sometimes they don't. As advanced as our technology is, we may never know this. It could be random that in some instances it's just a thunderstorm and in others a lethal tornado is spawned, or it may be due to a "perfect storm" of a combination of many apparently unrelated variables.

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Financial markets are quite possibly just as complex as weather systems, and just as dependent upon a host of factors that may or may not be evident and may or may not be related.

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That's why I can't resist snickering when I read the predictions that come with such certainty from so many pundits and "experts" this time of year.

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The sad truth is that economists and market strategists can't even figure out events that have already happened, much less those that are yet to come.

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We all know, or think we know, that the busting of the tech bubble that led to the halving of the S&P 500 and a nearly 80% evisceration of the NASDAQ Index over the three years from 2000 through 2002 was due to historic overvaluation levels. But if that were the case, why did the stock market wait until 2000 to collapse? It had achieved record valuations long before that and had kept on setting one new high after another.

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I challenge you to identify the catalyst that finally ushered in the end of that roaring bull market and the beginning of the lost decade for equities that followed. If there was one, we have yet to figure it out. Likewise for the Crash of '87.

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I'm writing this while in agony. My back went out on me last night. The proximate cause: putting a sheet on our bed. Yes, that's right. I threw out my back doing light housework.

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Of course, I don't believe that the act of making a bed did the damage. That just happened to be the random act that set off an already lit fuse.

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It could have been the strenuous exercise I'd done earlier in the day. More likely, it was the accumulation of years of pounding on my body.

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Everyone is conjecturing as to what will be the catalyst or trigger for the next bear market in stocks. There is unlikely to be one. And there will be no bells ringing at the top.

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Like that one random grain of sand that brings down the whole pile, or that stupid top sheet, it won't be anything anyone is expecting or looking for.

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Just because we can't forecast what's going to happen in the economy or the capital markets doesn't mean we shouldn't remain vigilant to the conditions that may influence their direction.

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Many more lives would have been lost to that terrible wave of tornadoes, had the high risk of their occurrence not been recognized by meteorologists and warnings not been issued. The experts may not have been able to pinpoint the exact certainty of tornadoes, or where and when they would occur, but they were able to identify the conditions that increased their likelihood, and that alone avoided far greater loss of life.

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The last tornado that stayed on the ground nearly as long as the Kentucky monster, which occurred prior to the technology we have today, resulted in nearly ten times the fatalities.

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?The good news is that, while we may never be able to accurately predict severe weather, we've vastly improved the resources necessary to prepare for it.

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