Personal Wealth Management / Expert Commentary
Ken Fisher Explains Potential Market Threats to Watch For
Fisher Investments’ founder, Executive Chairman and Co-Chief Investment Officer Ken Fisher shares his opinion on risks that could derail the stock market. He thinks all widely discussed concerns, such as the Russia-Ukraine war and the China-Taiwan tensions, are likely priced into markets to some extent. Ken believes surprises tend to move markets most, therefore, investors should worry more about the risks that don’t get as much media attention.
The first risk Ken mentions is a regulatory overreaction to the recent bank failures or the turmoil in the cryptocurrency industry, which can create unintended consequences. Another risk is overlooked geopolitical conflicts, such as the mounting tensions between India and Pakistan—two nuclear powers with a shared border. Finally, Ken describes the biggest risk of all, which is an event that no one has thought about—a problem that sneaks up on investors has great potential to wallop markets.
Ken Fisher: We get a lot of things that people fear. You hear about them all the time. Media tends to carry them right to us and shove them in our eyeballs today through all kinds of features like online aggregators on your smartphone, in the headlines of newspapers. Those fears are usually pretty well priced into markets and aren't really the things we have to worry about because because there are fears we've already acted on them, as best as we all know how to, and therefore they typically tend to be pretty well priced into securities in advance, don't usually have much subsequent pricing power. What therefore are risks that we should worry about? We might worry more instead about risk. People do not talk about much. Let me give you some examples. Banking has been something that's gotten a lot of 2023 headlines and you know that. Systemic banking crisis. ET cetera. ET cetera. The bigger risk is not that you have so-called contagion and systemic banking risk with banking failures. The bigger risk is the request from a wide array of sources for the government to do something so this doesn't happen again. That part where we demand the government to do something often ends up in regulations that have untoward consequences. Well-meaning, unintended consequences that cause problems are pretty common when Congress or regulators go and create new ring fencing for any category, and particularly so in banking. So the bigger risk is not. The contagion of the banks. It's that the government decides to do something. Now, let me talk about that for a minute. The regulators that we have a big banking regulator, the Federal Reserve. Very few of these people, and none of the people on the board of Governors have any real world experience inside banking. They're all from the outside somehow, mostly academics and lawyers with very smart people. But without that inside the world reality. If you take. Boxing coaches. They may not have been the greatest boxers in the world before they became coaches. But all the greatest boxing coaches boxed. You can read all the books you want about boxing. Spend a lot of time hanging around the ring. And that doesn't help you an iota. The first time you go into the ring against a real serious opponent. You're going to lose. The fact of the matter is, as Mike Tyson says, everybody's got a plan until they get a punch in the mouth. And the fact of the matter is that the regulators don't really have that real world experience. So it's easy for them to create unintended consequences. If you think that's bad. I mean. Janet Yellen, Treasury secretary, used to be head of the Fed before Powell. She was the pure academic. Powell is not a pure academic. He had some private equity experience but didn't work in a bank born and bred D.C. lawyer background. Kind of a version of an in and out of private sector, public sector swamp critter. If you'll pardon that phrase. But the point that I really want you to see is if you think the regulator folks lack real world experience, heaven help you when you get to Congress when those guys get going. They got no real world experience in anything that relates to a category like this. At all. I can think of one member of Congress, French Hill from Arkansas, too, that actually has some real world banking experience. And he's a great guy. But in reality, what Congress does is a lot of politicians who think they know what they're doing, who usually don't, and it's easy to create unintended consequences. So in reality, that's one. Another big risk is similar to that. If they want to do something about crypto, you could end up in the same feature. There's all the concerns that we've had with crypto failures that the government has to do something. The reality of the government doing something is it's often worse than when they do nothing and that same could apply to the devil in the details of crypto regulation, which is coming into various parts of the world as well as moving toward America. A third risk that is of some significance importance in my opinion, that so far has been benign. But could flare up is geopolitical conflicts. Not in the places we talk about them, you know, the places we talk about them there. The headline ones Ukraine, Russia, Taiwan, China. Or you could view that as Taiwan, China, US. I don't care how you want to view that, but these are headline ones, one that nobody talks about that I'm watching very closely and has not blown up and I surely hope it does not. Is conflict between India and Pakistan two nuclear powers, neighbors traditionally hostile to each other. And where India was benefiting last year from discounted oil that Russia had to be able to sell. So India got it cheaply. One of the few countries last year that did as Russia had to put out more oil than ever before because of the Western sanctions that deprived it of its traditional customer base. Now Pakistan's getting a lot of that, taking oil away from India, building the tension between them. And remember that India at one level is like the top of a of a of a triangle. Almost like an irregularly shaped diamond with Pakistan on the one side and China on the other. So if you get a hot conflict. We would be facing, unfortunately. Two major economic forces. Three nuclear powers, all in one geography and the potential for geopolitical haywire, where we already are stretched thin because we have to worry about Russia, we have to worry about Taiwan. And there's only so many theaters we can operate in at the same time that our military is already stretched and we have limited theater capability. We don't have the ability to use any material force to calm down that region. We're not particularly loved in Pakistan anyway, and our relationships with India have gotten frostier. So therefore, this could really go haywire. It's things that we don't see, that we don't talk about, that blow up that are the biggest risks always. In this case. I hope it doesn't blow up. I watch it. But here's the point. The one that really scares me the most. I've given you three. The one that really scares me the most, number four is the one that's big and scary and nobody sees me and you included, because that's the one that has the biggest risk because we don't see it. It isn't pre priced at all. Thank you very much for listening to me. I hope you found this educational and useful. Subscribe to the Fisher Investment YouTube channel if you like what you've seen, click the bell to be notified as soon as we publish new videos.
A series of disclosures appears on the screen “Investing in Securities involves a risk of loss. Past performance is never a guarantee of future returns. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations. The foregoing constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice or a reflection of the performance of Fisher Investments or its clients. Nothing herein is intended to be a recommendation or a forecast of market conditions. Rather it is intended to illustrate a point. Current and future markets may differ significantly from those illustrated here. Not all past forecasts were, nor future forecasts may be, as accurate as those predicted herein.”
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