Everyone (in financial circles) keeps asking each other (and me) the same question: What will be the big surprise of 2007? What will stop the bull market from a fifth year of gains?
It won’t be interest rates, which are still low in historical terms. And corporate earnings are solid, even if slowing somewhat. Yes, the consumer looks tapped out, but consumers have looked tapped out since, oh …. 1958 or so. And strike avian influenza, a collapsing hedge fund, etc., as all are about as discounted by the market as they can meaningfully be.
So, if you had to guess, what outlier event — what black swan, to borrow my friend Nicholas Taleb’s apt construction — is out there and underestimated? Sure, maybe it won’t happen, but what downbeat probability is the market currently underestimating? A terrorist attack? Reversal of the gulf current? A new U.S.-led war in Iran? Wal-mart buying Amazon (okay, that one was for me)?
You tell me.