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Black Swans Circling

4 June 2010 3 Comments

It’s truly amazing how many potential black swans are circling around our beloved economy. While the mainstream media and government comments speak to some type of recovery, most readers of this website and others like it know that the recovery is a joke. In addition to an economy that is structurally flawed (too much debt, too many homes, buildings, not enough productive jobs, too much government, too much taxation and regulation, etc.), the economy is also facing a number of black swans that can hit at any moment. Let’s look at these briefly.

Iran / Israel / The Middle East

The constant tension in the Middle East is probably much more likely to intensify than to diminish. With crazy Ahmadinejad threatening Israel and taunting the west at every possible opportunity, and with Iran working hard to develop nuclear weapons, it’s hard to imagine it not leading to conflict. Should military conflict commence, the global economy will surely be impacted.

China Crash

The Chinese economy is definitely a story to pay attention to and when it comes to leading the global economy in the 21st century, I think China is the answer. The problem is the speculation that takes place there that too frequently leads to massive bubbles. A crash in the Chinese markets (stocks, real estate, etc.) is very possible. While I would view it as a buying opportunity for long term China positions, it would have a major impact on global markets – especially the fragile US markets.

European Debt Crisis

This story is just beginning. Greece is just the start. Europe is an incredible mess. Each country has too much debt and much of it is owed to eachother. It’d be like if California owed money to Michigan who owed money to Florida and none of them can pay it back. Look for Spain and other countries to continue to struggle. This could eventually end up with a collapse of the Euro.

A Dollar Crisis

Many people have viewed the rise in the dollar recently against other currencies as strength in the dollar. It’s not strength, it’s just that the other currencies are worse. In the race to the bottom, the Euro is just temporarily beating the dollar. Don’t confuse this with real strength. The reality is that the fiscal problems of European countries are very similar to the American ones. Eventually the time will come when America will have to either take drastic action or default. Throw in the possibility of China refusing to continue purchasing our debt, and it’s an ugly future for the greenback. Look for continued weakness in the dollar over the coming years. If it escalates too fast, we can get hyperinflation and a real crisis.

Gulf Oil Spill & Other Environmental/Natural Disasters

The gulf oil spill that has taken over headlines over the last month is nothing short of a major environmental disaster. While there might be progress in stopping the leak (hopefully), damage has been done. Gulf coast industries have taken a hard hit. If for some reason the leak can’t be stopped, the economic and environmental damage could be horrific. Other similar disasters like the Iceland volcano can pose serious threats to a fragile global economy dealing with an increasing number of issues.

“Flash Crash” Events

Lastly, who can forget the already famous “Flash crash” from May 6th, 2010. in a matter of minutes, the Dow plunged nearly 1000 points. While the mainstream media was quick to blame it on a fat fingered trader (which is a joke), the reality is that the market is driven by computers – up to 70% of the daily volume is computer generated – hardly a natural market. As the manipulation and high frequency trading continues to dominate the stock market, it is positioned for major events like the “Flash crash”. I guarantee you it isn’t the last time this happens. The stock market can’t be fully trusted. It is supposed to be a way to invest money in real companies, but instead it’s dominated by Wall St insiders who gamble and use insane levels of leverage for short term trades.

We live in a world of uncertainty. While these black swans might not mean the “end of the world”, they surely represent major impactful events that can occur and severely disrupt and already teetering global economy. Since we’re all impacted by the economy, I encourage you to take steps to prepare yourselves for such future events.

How might you do it? Common sense mostly. Be frugal, save some money, invest in real assets, keep extras of basic necessities, and be responsible with your resources.

3 Comments »

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