New Market Risks

Consuelo Mack in her WealthTrack program today is rerunning a recent interview that is of note as she picks the brain of Wall Street guru Rick Bookstaber as he shares his sentiments about coming risks in the market.  This is partly inspired by long-running prognostication from another guru, Jeremy Grantham, who has long been predicting calamity, something I'm skeptical about given the fact that calamities are almost always preceded by long periods of bad market and economic fundamentals and the fundamentals for the past few years have actually been quite strong.  But everyone's entitled to their opinion, and we are all entitled to consider different perspectives.  Merry Christmas!  

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Sponsored by: December 24, 2021 Dear WEALTHTRACK Subscriber, The S&P recorded its 68th record close for the year on December 23rd, up 25.8% year to date, chalking up a three year average annualized return of 25.1%. The Nasdaq Composite’s three year average annualized winning streak is 35.2%. Talk about a bull run!    Not to be a party pooper but in a WEALTHTRACK interview in July investment legend Jeremy Grantham said we are in a “bubble of epic proportions,” more dangerous than 1929!  He cited what he calls extreme valuations and speculative behavior in the stock, bond, housing and some commodity markets. If you missed it you can watch the interview on wealthtrack.com. Needless to say he is just as convinced now as he was then. If Grantham is right, or even if conditions are not as extreme as he believes they are, there is no question that there have been record-breaking bull runs in all of those markets in the last couple of years. But how risky are they for investors?   On this Christmas weekend we are revisiting a recent interview we did with a noted expert on managing financial risk. He is Rick Bookstaber, Founder and Chief Risk Officer of Fabric, a platform he created in 2018 to provide institutional level risk management tools and advice to individuals through financial advisors and asset owners.  Chief Risk Officer is a role he has had at several leading financial institutions, most recently at the $168 billion University of California pension and endowment portfolios. Before that at hedge funds Bridgewater and Moore Capital, and investment banks Morgan Stanley and Salomon Brothers.  During the global financial crisis he switched to the public sector. From 2009 - 2015 he worked at the SEC and U.S. Treasury.  Among his projects was helping build out the risk management structure for the Financial Stability Oversight Council and drafting the Volcker Rule which restricts proprietary trading by banks. Bookstaber is also an author of two highly regarded books on financial risk. His most recent is The End of Theory: Financial Crises, the Failure of Economics, and the Sweep of Human Interaction.     His first, A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation, published in 2007 presciently warned of the perils of the explosion of financial derivatives, some of which he helped create.  In a 2007 WEALTHTRACK appearance which you can see on wealthtrack.com he alerted us about the twin risks of high leverage and complex financial instruments. How right he was.  In this interview Bookstaber discusses the risks he is concerned about now. Also, in our  EXTRA feature you can see this MIT trained PhD economist explain how he became “obsessed with risk”.  If you miss the show on public television, you can watch it on our website. You can also find the WEALTHTRACK podcast on Stitcher and SoundCloud as well as iTunes and Spotify.Have a Merry Christmas holiday and make the week ahead a healthy, profitable and productive one!  Best regards, Consuelo