Hunting Black Swans – The Season Begins

You’ve likely heard the term “black swan” before….and I’m not talking about the bird.

The black swan theory or theory of black swan events is a metaphor that describes an event that comes as a surprise, has a major effect, and is often inappropriately rationalized after the fact with the benefit of hindsight.

With all the “bad news” flying about these days, in such dark contrast to the background of eternally higher stock prices, and the never-ending “sunshine” of Central Bank intervention, it may just be time to consider getting out that cammo, shining up those shotguns, and heading out to the fields to do some hunting.

After all… can’t honestly expect some kind of “orderly exit” when things finally do start coming down to Earth do you? Do you?

Black swan hunting anyone?

Here’s a couple of things to keep in your sights:

1. The developing story in The Ukraine.

Once again The United States is sticking its nose where it most certainly does not belong, and is again butting up against Russia and our ol friend Putin with respect to this “tug of war” over The Ukraine. The U.S is hell-bent on having the Ukraine “come over” and join the E.U with aims to set up military / larger positions along the Russian border.

You don’t honestly think its humanitarian interests again driving the U.S do you? Do you?

Please. This scenario may not be on your radar “yet” but trust me……it’s should be.

2. China Carry Trade

China is now making some waves in the currency world and appears to be purposely pushing the yuan down in value to give its exports a bit of a lift amid the nation’s decelerating growth.

Sound familiar? So in other words….the Chinese are now doing exactly what the U.S has been doing for a full 5 years, and the media continues to label the Chinese as currency manipulators?? Hilarious.

The effect of a “falling yuan” has the potential to do “sizeable damage” to the CNY carry trade now approaching levels comparable to that of JPY so….a reversal of this trade would have monster global effects, with “unwind” being nothing short of disastrous.

China is “stirring the pot” now in the currency world and in my view is edging closer and closer to having the Yuan recognized as an “international currency”.

Watch for more signs of a “falling yuan” and the impact on global markets.

3. The E.U Zone

As you can get bored out of your mind listening to the day-to-day data out of any number of European countries, there is really only one thing you need to keep in mind.

The E.U Zone is so screwed, so banged up  and so “far beyond” any realistic expectation of recovery that it could seriously be “any day of the week” where news has it that well……lets put it this way – Spain’s unemployment rate is around 25% so… let me know when you hear that puzzle has been solved. Gimme a break.

So with all these potential “black swans” flopping about don’t get caught snoozing there in your blind.  You could wind up having a very, very..VERY bad day.

Oh ya…and the U.S unemployment print added another 348,000 to the line up last week so…….sounds like some real improvement there. Not.

10 Responses

  1. JSkogs February 27, 2014 / 5:51 pm

    We haven’t had a 15% plus correction since Aug 2011. Been a long time…..and it was euro based. A bear would say we are way overdue. A bull would say look at all that momentum. I’m personally positioned for some sort of a pullback in risk but I have no idea how much. A strong correction would need market participants in euphoria……its arguable we’ve been in euphoria since 1600 on the spx….some 250 points ago…..and a catalyst. There are lots of potentials out there right now so it will happen sometime soon. I’m personally not getting overly excited about a monster correction though until we see some ugly inflation start to happen.

    • Forex Kong February 27, 2014 / 6:10 pm

      Right on man…I’m of the mindset we’ve been in euphoria for some time now for sure….although it’s really hard to put a cap on it.

      By the time I start falling asleep at the wheel myself…I can’t imagine correction is too far off, but as the post suggests – I can’t imagine things just “softly correcting” and then just “continuing on”. We need to see that catalyst!

      It’s a drag of a market now….on either side of the fence really, and I don’t exepect it to get any better – or easier any time soon so….what can ya do?

      Keep trading it….keep sharp etc..

      Inflation on the way yup.

      • Forex Kong February 27, 2014 / 6:20 pm

        Interesting how things are lining up here again with respect to USD and risk etc…

        As we’d thrown around a couple months ago…hot money out of Japan fueling U.S equities as well USD/JPY as the cash needs to be converted to USD before purchasing stocks. Makes sense everyone? Sure. So…..a rising USD along with rising stock market as the “jet fuel” is Yen.

        So inversely I’ve got the USD Dollar rolling over “pretty damn quick here” and taking out near term lows, heading for the Oct lows…

        USD down = Stocks down too? Makes sense as that could be our “correction” with alot of other things falling into place.

        $tran / Nikkei / $BKX as mentioned a day er two ago….all weak / making “lower highs” not “higher highs”.

        Yen is the jet fuel, so……..again I’m more interested in Japan than the U.S for “real” near term signals.

        Thinking out loud.

  2. JSkogs February 27, 2014 / 6:02 pm

    With regards to inflation, oil looks pretty coiled and ready to get out of its multi year consolidation. Also, fuel prices are really high already and not even into summer driving season. My guess is that we see some serious inflation this summer. And coupled with the statistics of the business cycle that should mark the end of this expansion. OBVIOUSLY a lot of s*&t has to fall in line for me to be right here haha.

  3. David February 27, 2014 / 7:30 pm

    Referencing points 1, 2 and 3, it’s no wonder we had an all-time closing high on the S&P!
    Big crashes usually come right after new highs and when the market seems “unstoppable”. I still remember Silver at 50 an ounce a couple years back and people were clamoring for 200+ an ounce. Being the contrarian I am, I didn’t chase and thought it “had to come back down”, but I’ll be the first to admit, I started thinking it wouldn’t and almost got caught up in the euphoria myself. This same phenomenon just occurred with Bitcoin over the last few months. It seemed “destined for greatness” (and who knows, maybe it still will be, but Mt. Gox sure isn’t helping).

    As far as Forex goes, EUR/NZD looking good to reload here Kong (I’ll be starting a long position in GBP/NZD); if we get a black swan, these babies are gonna fly to the moon (and I’ll be there to fade it back down as well, a great 2-way trade brewing I hope!).

    • Forex Kong February 27, 2014 / 7:46 pm

      If you’ve got the stones for it… could we not take a pot shot at EUR/NZD down here?

      I am.

      I didn’t do a stick of promotion here for Bitcoins as I kinda saw that one coming ya. Great concept – too early for this Gorilla.

  4. David February 27, 2014 / 7:53 pm

    I remember there was a guy on here who seemed pretty knowledgeable and very bullish on Bitcoin. I’m curious on where he stands now. Has his opinion changed at all based on the current news going on? Are you out there? Just very curious on your thoughts at this level if you read this. I always thought it could look attractive and that I would possibly get in on dips under 500.

    • Forex Kong February 27, 2014 / 7:56 pm

      Yes he was great….and really knew his stuff.

      I too would like to hear where he stands on it…..perhaps we’ll get lucky.

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