Note Précis March 7,2018 – Market Correction Distilled: Frequently, market correction and much rarer extreme bear phases seem ostensibly to appear at inconvenient times, notwithstanding history. Much has been expended about the capital market correction of recent weeks. Explanations as to the catalyst range from volatility ETFs to fear of deficits and tariffs to change potential in central bank policy. It seems much like the fable about men in blindfolds when tasked to describe an elephant and who instead relate various individual attributes. The behavioral reality is that assuming perfect knowledge is risky. Particular assumptions have raged in past cycles but perforce unraveled. It occurred whether about commodities and inflation into the late 1970s or eyeballs rather than revenue growth driving information technology into the late 1990s or in the 2000s on slicing and dicing credit averting systemic risk. Currently, the elephant in the room encompasses much. It can be distilled into unusual investor complacency over widely ascribing low risk premiums onto low interest rates. Complacency seems being expunged. At opposite ends have been political developments in the U.S. and China. Europe is amid fractious politics like the Italian election. Seemingly small tariffs draw response and protectionism acceptable. Stress testing ability to pay is crucial for fixed income and not just a central bank function. Lately and despite widespread expectations based on lagging valuation in Europe and Japan, peloton like equity rotation in leadership has faltered. Despite global growth appearing better than that of 2009-2017, higher risk premiums and sharply divergent delivery of investor return loom geographically and among industries.
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