Thursday, 24 March 2011 17:36

Do Black Swans Really Matter? Not As Much as the Circle of Life, The Circle Purposely Disrupted By Multiple Central Banks Worldwide!!!

With all due respect to that Nassim Taleb dude who popularized the term "Black Swasn", Black Swan events are both overrated and the term is sloppily bandied about by those who may not be putting the requisite thought into just how utilitarian the knowledge of Black Swans actually are. Since you can't accurately predict, nor back test against, nor adequately hedge against such events, exactly what good is a Black Swan discussion. Well, I can answer that question. Black Swan events do maximum damage when the economic cycle is at its weakest. In Reggie Middleton's Economic Circle of Life (think the Lion King) it is the right portion of the circle in which Black Swan events do the most damage.

Actually, it is not the Black Swan events themselves that do the damage but said event do serve as the catalyst that either bust a bubble that was waiting to pop anyway, or break a structure that was hobbling along on one leg as it was  - where we happen to be now in many places of the developed world - sans rampant propaganda, misinformation and disinformation from less than disinterested sources.

I have always been of the contention that the 2008 market crash was cut short by the global machinations of a cadre of central bankers intent on somehow rewriting the rules of economics, investment physics and global finance. They became the buyers of last resort, then consequently the buyers of only resort while at the same time flooding the world with liquidity and guarantees. These central bankers and the countries they allegedly strive to serve took on the debt and nigh worthless assets of the private sector who threw prudence through the window during the "Peak" phase of the circle of economic life, and engaged in rampant speculation. Click to enlarge to print quality...


The result of this "Great Global Macro Experiment" is a market crash that never completed. BoomBustBlog subscribers should reference File Icon The Inevitability of Another Bank Crisis while non-subscribers should see Is Another Banking Crisis Inevitable? as well as The True Cause Of The 2008 Market Crash Looks Like Its About To Rear Its Ugly Head Again, With A Vengeance.

All four corners of the globe are currently "hobbling along on one leg", under the pretense of a "global recovery".

Simply sit back and look at the (supposed, none of these should truly be considered surprises) Black Swan Catalysts that we now face:

  1. US Housing, you know, the the thing that kicked this all of to begin with - The True Cause Of The 2008 Market Crash Looks Like Its About To Rear Its Ugly Head Again, With A Vengeance Friday, March 11th, 2011
  2. US and/or European Commercial Real Estate - Reggie Middleton ON CNBC’s Fast Money Discussing Hopium in Real Estate Friday, February 25th, 2011
  3. MENA, the Middle East & North Africa - Egypt’s Social Unrest As A Pan-European Economic and Financial Contagion? It Can Happen!!! Friday, January 28th, 2011  or First Tunisia, Then Egypt, Now Yemen: Will This Reach The Powder Keg That Is The EU & What Will Happen If It Does? Wednesday, February 2nd, 2011
  4. Japan - Can Contagion Be Avoided Considering The Magnitude Of Japan’s Woes? Tuesday, March 15th, 201

The list can go on. The most likely catalyst is described as follows...

The advice coming from both the government agents (ex. central bankers) and those whom these government agents have pledged to rescue at the absolute cost to the average tax payer (the FIRE sector, particularly the banking cartel)  has been absolutely horrendous. First let's take a look at the most respected of these agency protected players - Goldman Sachs. From my missive, Is Another Banking Crisis Inevitable? posted last month, I excerpt the following:

Today, Bloomberg reports that Goldman Sachs Turns Bullish on Europe Banks as Debt Risk Eases.The report goes on to state:

The U.S. bank that makes the most revenue from trading advised investors to take an “overweight” position on banks, raising its previous “neutral” recommendation, according to a group of equity strategists led Peter Oppenheimer. Investors should pay for the trade by lowering holdings of consumer shares, he wrote.

“For financials the narrowing of sovereign spreads in peripheral eurozone, which our economists expect to continue, is a clear positive,” London-based Oppenheimer wrote in the report dated Feb. 3. “Banks are one of the least expensive sectors in the market and the trade-off between their growth prospects and earnings in the next few years looks especially attractive.”

Unfortunately, the risks of this particular trade were not articulated, and I feel that the risks are material. Far be it for me to disagree with the “U.S. bank that makes the most revenue from trading”, but they have been wrong before – many times before. Reference Is It Now Common Knowledge That Goldman’s Investment Advice Sucks??? or Did Reggie Middleton, a Blogger at BoomBustBlog, Best Wall Streets Best of the Best?for more on this topic.

Attention subscribers: A new subscription document is ready for download File Icon The Inevitability of Another Bank Crisis

So where is the risk?

The impact of the Asset Securitization cum Sovereign Debt Crisis to bank balance sheets should become the market and media focus. The full cost of cleaning up the balance sheets of financial institutions particularly against the backdrop of adverse macro shocks emulating from sovereign defaults is not fully known. Structural weaknesses in sovereign balance sheets could easily spill over to the financial system due to the fact that most banks are stuffed to the gills with sovereign debt – highly leveraged, and marked as risk free assets at par. This can have broad, adverse consequences for growth in the medium term.

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BoomBustBlog has taken the opposite stance: The Inevitable Has Finally Been Admitted In Europe: The Macro Experiment Has Ignited Inflation Without Commensurate Growth & Rates Will Spike. I have queried many times in the past, Is It Now Common Knowledge That Goldman’s Investment Advice Sucks???. Those who follow me regularly know that I have no problem running up against these big investment houses in terms of analytical accuracy and veracity. See Did Reggie Middleton Best Wall Streets Best of the Best? to ascertain who has been most accurate throughout this entire fiasco since 2007. I am not that smart, and I don't have a crystal ball. I simply understand and respect the Circle of Life and I do not need to screw my clients in order to make my profits. Let's see where the news of today puts those Goldman proclamations in reference to my perspective...

From Bloomberg - Socrates Defeat Pushes Portugal Closer to EU Bailout: Portuguese Prime Minister Jose Socrates tendered his resignation after plans to cut the budget were rejected by parliament, pushing the country closer to an international bailout.

BoomBustBlog analysis:

Bloomberg - Irish GDP Fell 1.6% in Fourth Quarter on Investment, Exports : I have warned on Ireland and its banks repeatedly


Bloomberg: U.K. Retail Sales Declined More Than Forecast in February

Osborne to Ease U.K. Voter Pain by Taxing Oil, Banks, Rich

European Services, Manufacturing Growth Slowed in March


Bloomberg: Spanish Bank Ratings Cut at Moody’s After Nation Downgraded

BoomBustBlog analysis:

Click here for the Pan-European Debt Crisis series or here for my latest on the topic.

Last modified on Tuesday, 05 July 2011 15:30