“As seen from the outside, the massive upheaval in Western society is approaching the limit beyond which it will become “meta-stable” and collapse.”
Solzhenitsyn
"The pace and severity of financial crises has taken an ominous turn for the worse....
With one crisis seemingly begetting another, and the fuse between crises now getting shorter and shorter, the world economy is on a very treacherous course."
Stephen Roach, Morgan Stanley, May, 2010
“Washington is not helping.
The massive permanent expansion in federal spending and regulatory oversight built into President Obama's budget is discouraging private hiring by raising fears of higher taxes and regulation. Simply, higher taxes discourage purchases of non-essentials and high-line durable goods…
All that spending will require higher taxes, and raising taxes on families earning $250,000 simply won't be enough finance it…
Much of the $787 Billion stimulus money was squandered on pet projects that created few jobs…
The biggest banks received more than $2 trillion in TARP and Federal Reserve assistance to clean up their balance sheets and recapitalize securities trading, while the 8000 regional banks got little assistance and remain burdened by toxic real estate loans. Consequently, more than 230 regional banks have failed, and small and medium sized businesses cannot get credit to expand.”
“Morici: Friday's Jobs Report: Outlook Darkens for Economy, Obama”
Peter Morici, CNBC Guest Blog, 8/4/10
“There are two types of commentary on the politics of currency and central banking: the chin-stroking, keyboard-tapping opining you might get on this or other news pages, and the more definitive whirrs, buzzes, and clanks on the shop-floors of the world’s gold refiners…
But the lack of trust in central banks’ and governments’ integrity now has seeped into a general distrust of institutionally managed assets.
So the rich, or middle class, are buying physical gold. Not just the Middle Easterners. The European rich and middle class…
The core business these days is taking the classic 400oz “good delivery” bars, refined to 0.9995 purity… and producing “four nines”, or 0.9999 pure, kilo bars…
‘Kilo bars are what people want these days.’
The buyers of kilo bars, stamped with fancy Swiss logos, tend to be Europeans or Asians…
For decades Europe has been a net exporter of gold, which came from the vaults of central banks, and the bags of gold Napoleons handed down from one French generation to the next. That flow slowed, and is now reversing.
…The kilo-bar buyers are, in effect, betting on exchange controls and higher taxes.
There are enough of them now so the refiners have a backlog for kilo-bar production…”
“Melting gold market is a hot issue”
John Dizard, FT.com, 3/26/11
We have moved into a “Brave New World Paradigm in Politics, Resources, Economics, and Finance, and, therefore, in Investments” – a Black Swan (see below) World we name it.
This Black Swan World requires a New Approach to Investing for Profit and Protection, an Approach which we outline here.
While it is difficult to think of any Decade, or Century, without Crises (even the stable prosperous USA of the 1950s lived under The Shadow of the Cold War Nuclear Threat), there is one Contemporary Difference.
Today there are More, and especially More Potentially Serious, Crises than ever before. And Many are Crises resulting from ‘Black Swan’ Events, as we explain below.
In other words, we live in a Multiple Black Swan World – one in which their Multiplicity Makes Black Swans Probable.
Among the Causes of the number and severity of these Crises are:
- Technology has facilitated more interconnectedness than ever before. But this has led to an extraordinary (and in some cases foolish) interdependence.
For example, if key U.S. National Security Assets are dependent on High-Tech Silicon Wafers available only from a Factory in Northern Japan, Vulnerability is the Consequence. National Self-Reliance would typically be the Better Policy.
Globalism leads to a loss of Economic and Personal Liberty: Internationalism necessitates no such loss.
- Technology has also facilitated a “Multiplier Effect” so far as Risks are Concerned (But it also can Multiply Benefits.)
- Overreliance on Artificiality. For example, when a man made or Natural disaster causes Power grids to go down, Elevators, Parking Garages, Smart Phones, Social Networks, Transportation, Infrastructure, etc., all go down, some for the long-term. Much better in that case to be a sheepherder, hunter, fisherman, or gentleman farmer.
- Technology (e.g. Nuclear) has made the Consequences of Conflict, or Accidents or Natural Disasters, much More Devastating and Far-reaching than ever before.
- Exploding World Population Growth – 80 Million/Year – is increasing the competition for Scarce or Limited Resources.
Consider, for example, two Nations which have the Resources to Buy Food and Energy: China’s Annual 20 Million/Yr Population Growth, and the USA’s 5 Million Annual Population Growth (over 4 Million of which is from Immigration, approximately 50%, legal 50% illegal) creates increasing demand for Food (and Energy). But there are limits to productive capacity. Most of the best arable land around the world is already being cultivated and Crude Oil Production is near its Peak present potential.
- The Adoption of So-Called ‘Free Trade’ (rather than ‘Fair Trade’ Policies which, e.g. take Government Subsidies inter alia into Account) had led to the foolish Abandonment of Self-Reliance Policies by Sovereign Nations and Businesses, with an additional Negative consequence of Exporting jobs. As well, other Catastrophic Results include, for example, Parts Essential to National Defense are No longer Available and Businesses essential to Job Creation are shipped overseas, or “Free-traded” out of business.
- Official Statistics in Many Nations are Bogus, leading to the Misjudgment of Risk and the Misallocation of Capital.
Shadowstats.com calculates Key U.S. Statistics the way they were calculated in the 1980s and 1990s before Official Data Manipulation began in earnest. Consider
Bogus Official Numbers vs. Real Numbers (per Shadowstats.com)
Annual U.S. Consumer Price Inflation reported March 17, 2011
2.11% / 9.62% (annualized February, 2011 Rate)
U.S. Unemployment reported March 4, 2011
8.9% / 22.1%
U.S. GDP Annual Growth/Decline reported March 25, 2011
2.78% / - 2.21%
U.S. M3 reported March 11, 2011 (Month of February, Y.O.Y.)
No Official Report / - 2.19%
- Coupled with Q.E., one has a recipe for the (9.6% in the U.S.) Inflation, we now see, and the Harbinger of The Hyperinflation which is probable.
- This increasing Hyperinflation Threat is caused mainly by The Fed’s Money Printing (Q.E. 1 and 2… and 3? 4? and 5?...)
In order to consider the Opportunities, Threats and Golden Antidotes which arise from the Brave New World of Multiple Black Swans, we must first explore the nature of “Black Swans”.
‘Black Swans’ are Phenomena which are Statistical Outliers – Phenomena ostensibly so improbable that they are not typically be taken into account when determining probabilities, even though, if and when they do occur, their consequences typically have a very high, and often very negative, impact. [All Swans were thought to be White, until a 1697 Dutch Expedition to Australia found Black ones.]
The BP Oil Disaster is arguably such a Black Swan event, given the hundreds of Deep Water Wells which have been drilled safely (although an advance look at BP’s safety record might well have dramatically increased the forecast likelihood of a Disaster). Similarly, the Japanese Magnitude 9 Earthquake, Tsunami, and Nuclear Meltdown are Black Swan Events (though a 1960’s plant design built in an earthquake zone should have been Fair Warning).
In the world of Finance and Investment, Black Swan Events are those surprise events which (defective) Analytical Models deem so unlikely that one may relatively “safely” risk their occurrence, until, of course, they occur, with catastrophic results.
We have now entered a Brave New World of multiple often Interrelated Black Swan Events, a World in which such Events become Probable and no longer Improbable. Multiple Black Swans become in other words, Probable Catastrophes.
One such Congeries of Events is the Counterparty Failures which characterized the AIG, Lehman Brothers, and Bear Stearns debacles. These debacles show that high leverage coupled with a Black Swan event/s often has lethal consequences.
Black Swan phenomena were noted by the Latin Poet Juvenal and John Stuart Mill, but, to his credit, were recently applied to finance and investing, by Nassim Taleb in his 2007 Book The Black Swan.
The main point here is that the Multiplicity of interrelated ‘Black Swan’ Phenomena sometimes actually will become probable. Thus, Investors need to acquire Golden “Antidotes” in advance and consider Profit Opportunities, several of which we identify here.
Anticipating Catastrophes to come gives Savvy Investors an edge.
Thus, in what follows, we list some Nascent Black Swan Events with Profit (and/or Disaster) Potential (and some that are immediately threatening), and suggest Antidotes.
One of the Most Visible Black Swan Congeries is the Ongoing Eurozone Non-Solution to the Euro-Sovereign-Debt Crisis. Mega-Bank Creditors of the PIIGS are being bailed out (cf. egregiously, Ireland), but the PIIGS Sovereign Debt problems are by no means solved, just extended. Investors world-wide were, and are, being “invited” by Mainstream Media spin to pretend that the Black Swan Sovereign Debt Threat is now solved, and thus is now transformed into a financial non-Threat.
In fact the “Sovereign Debt Can” was just kicked down the Road a few months and will surely arise again in ever more threatening form as a Gigantic Black Swan.
A similar Analysis can be fairly applied to U.S. Sovereign Debt.
(Of course, the Icelandic Solution in which the Mega-Bankers take a Haircut, could work, but the Mega Banksters oppose that).
Now change focus from that very public Black Swan issue of the PIIGS Bailout to one quite Hidden, but no less Threatening.
Consider The Black Swan (covered in opaque White) of ongoing Covert (in addition to Overt) Fed Monetization (known euphemistically as QE, or Quantitative Easing), which is quite important because if it were Overt it would immediately create hyperinflationary pressures (which Overt QE does create in the long run in any event).
Jim Willie’s analysis last year is relevant today:
“…the USFed and USDept Treasury are using the United Kingdom as a ledger item for their mammoth USTreasury monetization, all barely hidden, with the TIC data used as a tiny fig leaf… At end 2009, as of the December tally, the UK owned $180.3B in USTBonds, yet somehow managed to accumulate in the new year, up to the current $350.0B. THE UK SUPPOSEDLY HAS ALMOST DOUBLED THEIR HOLDINGS IN A MERE FIVE MONTHS!!
Bear witness to the shadow USFed debt monetization operation, operating out of the United Kingdom, or at least its accounting…
Bear in mind that we are talking about crippled England here, or the United Kingdom more generally. The UKGovt just announced spending cuts to reach 40% of budget, not the previous 20%. Britain could not cope with an extended episode in the credit crisis, according to the Bank For Intl Settlements. Yet this nation gobbled up $170 billion in USTreasurys from ripe savings in five months?? Hardly… Newly ordained Prime Minister David Cameron ordered the officials to draw up 40% cuts, the biggest in history. He has ordered cabinet ministers to draw up a Doomsday budget whose essential service spending cuts could see tens of thousands given pink slips. Yet this nation gobbled up $170 billion in USTreasurys from ripe savings in five months?? Hardly. This is a smoking gun…”
“Smoking Guns of U.S. Treasury Monetization”
Jim Willie, GoldenJackass.com, 7/22/10
And then there are the U.S. Treasury Reports themselves showing which Categories of ‘Investors’ bought U.S. Treasury Securities.
Consider again Jim Willie and Eric Sprott and Bill Gross of PIMCO:
“…Eric Sprott of Sprott Asset Mgmt casts a suspicious eye at the USTreasurys for the so-called Household category in their accounting. It is a blatant ledger item for illicit monetization, a veritable crime scene without the cordoned zone and yellow tape. Sprott directs his accusations like a skilled prosecutor. He reinforces the claim of Ponzi Scheme cited by Bill Gross of PIMCO. Sprott calls the solution to finance the mammoth USGovt deficits to be the actual problem, namely hidden monetization…
… The remainder was purchased by a category called loosely "Other Investors" as a catch-all. This other group purchased $90 billion in 2008, but then turned up into hyper-drive its purchases to $510.1 billion of freshly minted USTreasury securities so far in the first three quarters of fiscal 2009…
Go to the source. The USDept Treasury Bulletin identifies "Other Investors" as consisting of Individuals, Government Sponsored Enterprises (GSE, as in Fannie Mae & Freddie Mac et al), Brokers & Dealers (who sell as intermediaries), Bank Personal Trusts & Estates, Corporate & Non-Corporate Businesses, Individuals, and Other Investors. It is far-fetched to believe parties in these groups had $700 spare billion to invest in the USTreasury market in fiscal 2009…
This category supposedly purchased $15 billion worth of USTreasurys in 2008, then jumped with ink jet assist (printing press) in 3Q2009 to a staggering $528.7 billion in purchases, a 35-fold increase. The Household is on track to buy $704 billion worth in all fiscal 2009. The bottom line is a shocker! What is the Household Sector? It is a combination of miscellaneous, ledger adjustments, and blatant monetization. Sprott calls it a PHANTOM that does not exist, but serves the purpose to balance the ledger in the US Federal Reserve Flow of Funds report…
BY THE END OCTOBER 2009, THE "HOUSEHOLD" ACCOUNTING CATEGORY OWNED MORE USTREASURYS THAN THE US FEDERAL RESERVE ITSELF. THAT IS CORRECT. MONETIZED USTREASURY BONDS ACCOUNT FOR MORE THAN WHAT THE USFED HOLDS. THE USTBONDS ARE HIDING IN ENGLAND.”
“Smoking Guns of U.S. Treasury Monetization”
Jim Willie, GoldenJackass.com, 7/22/10
Zhu Min, deputy governor of the Peoples Bank of China is understandably worried:
"The world does not have so much money to buy more USTreasurys. The United States cannot force foreign governments to increase their holdings of Treasuries… Double the holdings? It is definitely impossible."
“Smoking Guns of U.S. Treasury Monetization”
Jim Willie, GoldenJackass.com, 7/22/10
Unfortunately, the ostensible White Swan of Fed Policy is quite threateningly Black.
“…With foreign sources unwilling or unable to support USGovt debt, the monetization card will be used repeatedly and powerfully inside the desperate US-UK quarters. When the process is more widely recognized and publicized, the USDollar will be denigrated further, and rejected as quickly as any reasonable alternative can be produced by consensus. It is that simple…
No creditor nation whose leaders are in their right mind would continue to support the USDollar as the global reserve currency when its debt securities are the object of such open fraud and high volume monetization…”
“Smoking Guns of U.S. Treasury Monetization”
Jim Willie, GoldenJackass.com, 7/22/10
This Covert Monetization, when widely understood, will likely have catastrophic consequences for the U.S. Dollar (just as the Overt Monetization has already taken its toll on the U.S. Dollar and U.S. Economy), and will launch hyperinflation. It could launch anytime.
And Already this Q.E. has been reflected in skyrocketing Food and Energy Prices i.e. reflecting a dramatic reduction in the Purchasing Power of the U.S. Dollar, and many other Fiat Currencies.
A third Black Swan is the effect of the Bailout and stimulus Bills on the U.S. Economy. The Obama administration says they have catalyzed a Recovery with their Stimulus Bill. The Realities as presented by Peter Morici above, by Deepcaster, and by many others, say otherwise. ‘Nuff said.
Yet a fourth Black Swan is the somewhat rosy picture Official but Bogus U.S. Statistics give us of the U.S. Economy. (see above)
Looking at these somewhat rosy recent Official Reports leads Observers to believe that there is virtually no Inflation, that GDP growth is slow but solid, and therefore, that a Recovery is underway.
The only problem is that if the Official Numbers are Bogus as the evidence indicates they are, the Market Rally of the last two years has been built on Sand and Q.E. 2, and thus can be expected to collapse as easily as a sand castle, and sooner rather than later. (See Deepcaster’s latest Alert in the ‘Alerts Cache’ at www.deepcaster.com.)
In fact, the Official Numbers are Bogus and the Real Numbers paint a very different picture as the Shadowstats.com numbers above indicate.
Clearly the ostensible White Swan of an Apparent Economic Recovery is a Delusion. The Reality is a Multi-headed Black Swan of Negative Economic prospects, which will inevitably have negative consequences for the Equities Markets.
So what are Golden Antidotes to these “White Swan into Black” Realities and Threats?
Our immediate answer is the Precious Monetary Metals, Gold and Silver, essential Foodstuffs in relatively inelastic demand (and businesses focusing on them) plus the Category of High Yield Investments whose Yields exceed Real Inflation.
Gold is a hedge against the Realities of a Multiple Black Swan World of both the economic contraction/deflation pressures we see today, as well as the hyperinflationary pressures (which Jim Willie’s and other’s Revelations about Covert Monetization reveal) which are on the horizon.
Until recent months, our positive Recommendations regarding Gold and Silver acquisition, would have had to be severely qualified (as to timing) by the Reality of ongoing (for years) Cartel* Intervention to suppress Gold and Silver Prices.
In recent months, however, thanks to GATA and others, dramatic Revelations that not all Precious Metals repositories have all the actual metal they claim they have, have surfaced. This includes the Spectacular Allegation that the LBMA has sold some 45 ounces of Gold for every ounce they actually hold. All this has led to a weakening of Cartel* ability to cap prices. (See Deepcaster’s Alert for the week April 16, 2010: “Cartel Failing? Precious Metal Buy Reco! Forecasts: Gold, Silver, Equities, Crude Oil, U.S. Dollar & U.S. T-Notes & Bonds" and subsequent Alerts in the ‘Alerts Cache’ at www.deepcaster.com)
*We encourage those who doubt the scope and power of Overt and Covert Interventions by a Fed-led Cartel of Key Central Bankers and Favored Financial Institutions to read Deepcaster’s December, 2009, Special Alert containing a summary overview of Intervention entitled “Forecasts and December, 2009 Special Alert: Profiting From The Cartel’s Dark Interventions - III” and Deepcaster’s July, 2010 Letter entitled "Profit from a Weakening Cartel; Buy Reco; Forecasts: Gold, Silver, Equities, Crude Oil, U.S. Dollar & U.S. T-Notes & T-Bonds" in the ‘Alerts Cache’ and ‘Latest Letter’ Cache at www.deepcaster.com. Also consider the substantial evidence collected by the Gold AntiTrust Action Committee at www.gata.org, including testimony before the CFTC, for information on precious metals price manipulation. Virtually all of the evidence for Intervention has been gleaned from publicly available records. Deepcaster’s profitable recommendations displayed at www.deepcaster.com have been facilitated by attention to these “Interventionals.” Attention to The Interventionals facilitated Deepcaster’s recommending five short positions prior to the Fall, 2008 Market Crash all of which were subsequently liquidated profitably.
Nonetheless, The Cartel still remains Potent (if they were not, Precious Metals prices would doubtless be much higher than they are now).
Thus, as practical Antidotes, we strongly recommend acquisition of physical Gold and Silver with the Timing and in the Form of those Acquisitions described in our recent Alerts, as well as employing the Strategy laid out in “Defeating the Cartel... With Profit, Part 2” (6/19/2009) and “Defeating the Cartel... With Profit, Part 1” (3/28/2008) in the ‘Articles by Deepcaster’ Cache at www.deepcaster.com.
We also recommend the acquisition of Securities whose yields are higher than Real Inflation, now at 9.6% per Shadowstats.com. (Our High-Yield Portfolio has held up remarkably well during recent Crises. Indeed, all of our High Yield Stocks are above our Buy Prices and they keep generating those remarkable yields. To consider our High-Yield Stocks Portfolio with Recent Yields of 18.5%, 10.6%, 26%, 6.7%, 8%, and 15.6% when added to the portfolio; go to www.deepcaster.com and click on ‘High Yield Portfolio’.)
More than Energy or Even Precious Metals, Food and Potable Water must be at the top of Consumer Shopping lists everywhere around the world. With demand increasing from the 80 million plus annual world population increase, and increased resources of a growing Middle Class, especially in BRIC countries, to buy more and better Food, Food Producers are in the Catbird Seat.
Thus, we have recently recommended two such Food Producers and one Water Producer and Management Company, all of which we believe to be deeply undervalued (one is trading at under $6/share and the other two under $2/share), in our latest Letter and Alerts.
One is China’s largest producer and Seller of Fresh Fruits and Vegetables. It also grows Rice and breeds and sells livestock and has over 20,000 employees.
It recently had a P/E Ratio under 4 and profits have grown over 20%/yr.
As we write it is trading at around 65 cents per share U.S. or just below $5 HK, near its 52 week low.
Given that P/E Ratio, profit Growth and share price, you can see why we have called it a “Sleeper” Subsector.
Finally, it is Crucial to identify Potentially Black Swans to the extent possible in advanced of their occurring.
In sum, to Identify Black Swans, we recommend employing the following Guidelines among others.
- Get the Real Data from sources such as Deepcaster, Shadowstats.com and GATA.
- Assume the Mainstream Media is not providing the Full Story on Key Issues, or, indeed, at times is reporting “Manufactured News”, and, therefore, Search for Alternative Sources, and/or Additional Facts.
- Consider whether a particular Mainstream Media Story is Reliable, or whether it is likely it is “Manufactured News”.
- Consider The Interventionals as well as the Fundamentals and Technicals.
- Buy and Hold Rarely Works Anymore.
- Be aware of Tangible Resource Realities, especially, regarding Water, Food and Energy.
- Make Provisions for Personal Safety. Multiple Black Swans can turn ugly very quickly.
Consider Fundamental, Economic, Resource and Ecological Realities when developing an Investment Perspective. Consider, for example, that 80 Million Annual World Population Growth is going to create more Demand for Food, but supplies will be periodically endangered due to weather and Natural or Manmade Disasters.
Following these Guidelines can help ensure that one does not, in making Investing and Trading decisions, rely on Main Stream Financial Media Promoted White Swans, which in fact are Black, much to Investors and Traders detriment.
