The hardest trick is to predict the onset of a black swan event. Yet I have been pretty good at it for a
single reason. The serious black swans
are able to take advantage of preexisting conditions in the market and accelerate
them
I anticipated the market meltdown in 1987 which was completely unexpected
at the time. I understood that the
market before 9/11 was specifically vulnerable to such an event (it did not
really affect the market itself but the signals were red flagging) and was not
surprised but stunned at how large the event itself and the reaction
became. I also anticipated the crisis of
2008, but that one was patently obvious to all but the willfully blind.
This writer tries to list several prospective black swans, most of which
are not. In the list, please pay
attention to China
Spain et al will be patched in the same way the rest was patched. Again, the money has long since been spent
and the printing press is covering the losses.
Energy is the big story and it is not known which way the press will run
with it. A major loss of conventional
production would cause a price burst that will give us a rerun of 2008 of a
gentler nature. The real story is that
we can use fresh oil production to keep the US
So yes, these are all plausible sources of market shocks during 2011, but
not in the form of a serious black swan unless we have a major oil production crisis
somewhere. That could be a sharp loss in
Saudi production. I still do not think
the vulnerability is that particularly high.
The big black swan would be for Focus Fusion to announce a major economic success
in the production of fusion energy at an obviously cheap price structure. Such could be rolled out at great speed and
the entire global energy industry becomes terminally obsolete. Equally plausible is the ultracapacitor business
emerging this year making the E car truly viable. Both are now possible and increasingly
probable. Both are capable of replacing
and dominating their sectors extremely fast.
Everything else is a side show.
On the front of bad black swans, we really have nothing to worry about
economically, because all the excess is sorting itself out. It could be better and much faster but it is
at least sobering and perhaps we can avoid a repeat for another eighty years or
perhaps forever. We remain on track to
establish a modern middle class global civilization and we are already past the
fifty percent mark and are now starting to quickly chew up the balance. We may reach the ninety percent mark inside
of as little as twenty years and by that I mean everywhere at the same level as
China today.
Politically is another issue. I
think that Iran North
Korea
As an aside, ongoing Islamic economic failure is steadily undermining Islamic
extremism and we are now experienced in confronting it. They will continue to trash around for some
time longer until they grow tired of been the ditch diggers to the rest of the
world.
In whole I am an optimist for the coming year and think that we will
continue to muddle along quite well.
Ten Black Swans for 2011
By Christian A. DeHaemer
| Thursday, December 30th, 2010
On April 17, 1793, three French soldiers broke
into the tomb of Michel de Nostredame, a man we know as Nostradamus.
Legend has it that one man, a Corporal Adelaide,
picked up the skull in an attempt to gain the power of the long dead seer.
His fellow soldiers bore witness that his eyes
opened wide as he gained full knowledge, then was immediately struck down and
killed by an errant bullet, fired from the nearby riots.
A plaque around the neck of the corpse read 1793.
It is by channeling the ghost of
Nostrodamus — as if drinking blood from the very skull itself — that I
give you my Black Swans for 2011.
Black
Swans
For those of you who don't know, Black Swans are
unpredictable events that destroy prediction models.
After 20 years in the derivatives industry, Nassim
Taleb created the Black
SwanTheory to explain:
- The disproportionate role of high-impact,
hard to predict, and rare events that are beyond the realm of normal
expectations in history, science, finance, and technology.
The
non-computability of the probability of the consequential rare events using
scientific methods (owing to their very nature of small probabilities).
The psychological biases that make people individually and collectively blind to uncertainty and unaware of the massive role of the rare event in historical affairs. In other words, you can't create a mathematical certainty in the market. Long Term Capital Management taught us that. Computer models and base probabilities on bell curves... Yet it's the three percent on either end that makes all their algorithms fail. And by the very nature of statistics, an event that's 1% likely to happen will happen— if you wait long enough. Today I bring you ten events that could be that unpredictable, disruptive long shot for 2012.
1. China
Hedge Fund Manager Jim Chanos said the
following about China
Construction is 60-plus percent of GDP, compared
to exports of 5 percent... The problem is that consumption as a percentage of
Chinese economy has declined in the last 10 years, from 40 to 35 percent. It’s
all real estate...When construction is 60 percent of your economy, and you are
building lots of things that people don’t need, the state may let this get out
of control... It’s hard to manage this type of bubble.
2. Spain
High national debt, high inflation, high
unemployment, plummeting housing prices, and a second round of bank
failures coupled with political mismanagement sends Portugal into insolvency, followed quickly by Spain
This overwhelms the EU's 440 Euro bail-out fund
and sends U.S.
3. Decade
of natural gas
The U.S.
Furthermore, you should expect an additional
twenty percent increase in U.S.
The national leadership won't take advantage of
the opportunity to end our dependency on imported oil due to the combined
lobbies of big petroleum and green energy.
In any event, natural gas storage facilities
and pipelines will continue to grow until there is a global network of ports
and facilities to transport natural gas in much the same way we transport oil.
Right now, natural gas is around $4 in Texas
4.
Uranium companies surge
Last year, I predicted uranium would surge to $90
a pound.
That didn't happen. Instead, it went from $40 to
$65. I predict uranium in the $90s again based on the continued building of
nuclear plants around the world.
If you'd listened to my prediction last year and
bought uranium miners, you'd have doubled your money:
5. China
clings to dollar, riots ensue
This means that everything in China China
6. Farm
land jumps in price
According to a survey by the Chicago Federal
Reserve Bank: “Farmland in Iowa Indiana
Farmland prices are increasing at more than twice the historical average.
This will continue, despite the fact that all other real estate prices are
falling, and create a bubble. Farmers will overextend themselves, crop prices
will fall, and we'll have a raft of farm foreclosures.
Willie Nelson and John Cougar will go on tour
for Farm Aid VII. The national leadership will continue to squeeze food prices
through subsidies for ethanol... After all, you can't be president without a
strong showing in the Iowa
7. Dow
has four 10% correction in 2011 — ends the year up 9.7%
Volatility is down to pre-crisis levels. Bernanke
has set a paperweight on his laptop number pad. It is adding zeros to the
national debt as fast as his Lenovo will allow.
Last year I wrote: “No one is talking about an
extended bull market... The money that is currently being produced by the
Treasury and hoarded by the banks could flow to equities and launch another
bubble."
I predicted Dow 20,000. This didn't happen —
but the DJIA did climb
18% on pure liquidity from the Fed.
Judging by how few bargains there are out there,
I'd say that the market has gotten ahead of itself. The Bernank will continue
with its flood of cash, but expect a lot of mixed signals and volatility...
8. The
Year of the Electric Car
Look for EVs to sell out this year. The Nissan
LEAF, the Chevy Volt, and the Fisker Karma will hit the ground rolling, giving
early adopters all sorts of smug happiness.
Charging stations are springing up in downtowns
everywhere. You will be able to buy them at Best Buy. The Geek Squad will
hook them up in your garage.
9. Dead
tech revival
Old companies like Intel (NASDAQ: INTC)
(which had its best year ever), Cisco (NASDAQ: CSCO), IBM (NYSE: IBM) and Corning
10. Fidel
Castro dies
Cuban Dictator Fidel Castro finally kicks the
bucket. His brother Raúl makes overtures by allowing free speech and
releasing all political prisoners. He seeks to open trade talks with the United States
The State Department continues to spurn all
advancements. Leaders in both parties do nothing because you can't be president
without Florida , and you can't win Florida
Have a great New Year,
