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

Reggie Middleton's picture




 

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.

Click here for the rest of this entry »

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.

 

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Thu, 03/24/2011 - 19:07 | 1097347 Fearless Rick
Fearless Rick's picture

Reggie's finest point in this article is also the most cogent.

US Housing, you know, the the thing that kicked this all of to begin with

Asset devaluation must be occurring somewhere, and the place is in housing. Lower and middle class Americans are barely able to keep pace with inflating costs of living, fuel, food, clothing. Something has to cut them slack: housing. And once housing has collapsed, Americans will find ways to cut costs associated with the other living costs. They will grow their own food, raise their own livestock, invent alternative strategies for mobility, conserve. Mostly, the truly enlightened will hunker down and live a more traditional lifestyle.

Eventually all of these individual actions will have an effect, and mostly, the effect will be upon corporations at the top of the distribution chain: ag business, industrials, consumer brands, energy concerns. They will all be negatively affected by shrinking demand.

Why, one thinks, are oil and gas rising? Because of unrest in the Middle East? No, the oil is still being pumped. There are no gas lines in developed and undeveloped nations. The major energy firms boosted prices to supplant a lack of demand.

The economy, that amorphous entity we all believe we understand, is undergoing a dramatic shift that the wizards at the Fed could never have imagined. The insignificant - to them - individual parts are determining the fate of the larger, predator class.

All assets values will eventually fall. In fact, in real terms they already have. The rich and powerful will be hurt worse than the thrifty and prudent.

Thu, 03/24/2011 - 19:05 | 1097334 Muir
Muir's picture

Reggie,

Since I like Tyler (et al.) so much, I have not challenged him (them.)

I do not see a single black swan in any of the events of the previous two months.

Gray yes, (a term Nassim coined  himself) but not black.

And I, unlike so many, have read Fooled by randomness and The Black Swan (twice.)

Thu, 03/24/2011 - 16:36 | 1096762 slowimplosion
slowimplosion's picture

A Black Swan by definition cannot be predicted and cannot be planned for.  That is the whole point - summarized as "people think they are in control, they are not".

Thu, 03/24/2011 - 19:05 | 1097261 Hook Line and S...
Hook Line and Sphincter's picture

No, a black swan is a large, winged, herbivore that shits out radioactive guano on all that attempt to prognosticate its trajectory.

How appropriate that Cygnus (the swan constellation) has cygnus x1 within its confines... a black hole that alludes to our unknown distance to the event horizon.

Thu, 03/24/2011 - 16:26 | 1096708 aerial view
aerial view's picture

good points RM; but I'll repeat my mantra: until we FIRST demand full disclosure and transparency from our govt and the corps who do business with them, the clear solution to any of these problems will be nearly impossible to discern as even the brightest among us  will continue to be confused, divided and paralyzed allowing them to serve only themselves at our expense. You can't save a sinking ship if you don't know where all the major leaks are!!!

Thu, 03/24/2011 - 16:21 | 1096675 10kby2k
10kby2k's picture

The Fed sure did break the cycle. Everything is over priced--money is searching for ANY return and ignoring risk. You want to lend to  Portugal for 10% interest (i'll be interested at 10 cents on the dollar---90% discount)? I'm using this as an example. When the black swans clear, the bears capitualate and the the sane question their sanity....kaboom---down we go and hard. These ponzi, emotion driven events always last longer than rational. I sure wish the Fed had not stepped in 2008. This market is fucking insane...feels just like the Nazdaq's treck to 5,000 (IMO). I see no way to play it. I don't have the risk tolerance to step in front of it and short.....if i'm several months early, it will wipe me out.

Thu, 03/24/2011 - 16:05 | 1096542 Aquiloaster
Aquiloaster's picture

I appreciate that this article disambiguates the term "black swan". People use it now as if it were synonymous with "a real big event". If it was predictable, then NO. If it was not a game-changer, NO. Also, they may not be associated with crashes or impeding doom. It would be a huge black swan if we discovered a massive oil field under Antarctica, for instance.

The problem I have with this article, is that it assumes that this is a major set back for expansionist economics. What if the cycle of expansion in some countries, with aging demographic profiles, does not recoup losses? What if a new paradigm of efficiency and zero-growth emerges in demographically stagnant populations like the EU, Russia, and US? What if, as Chris Martenson states over and over, "the next 20 years will be completely unlike the last 20 years"? 

Thu, 03/24/2011 - 15:48 | 1096474 InconvenientCou...
InconvenientCounterParty's picture

People keep trying to model it like a classical market but those models do not fit what we have. It's a "notional market". It's theater. Opiate for the masses.

Poor bastards trying to game this are doomed.

A 1 week general strike would have these fuckers on their knees.

 

Thu, 03/24/2011 - 17:33 | 1097003 Thorny Xi
Thorny Xi's picture

Strike?  That sounds a lot like a bunch of teachers talking.  You're right, it only keeps working for the criminal class on top because people keep going to work.  What's so hard about staying home for a week?  Americans have no will to actually do something directly and in person, it's all outsourced, it's our culture. Even the Wisconsin teacher's union boss told everyone to go back to work after a week - and then she lost the war.  Count on it - Americans love slavery; we pretend to be free and then do nothing but take orders and pony up all day long.

Thu, 03/24/2011 - 16:00 | 1096526 SheepDog-One
SheepDog-One's picture

Simple non compliance with fractional reserve fiat banking system and tax slavery would render them all to their knees forever.

Thu, 03/24/2011 - 15:42 | 1096447 disabledvet
disabledvet's picture

and that's a bad combination a "jackass" and "a scorpion."  money should be light in one's pocket tho, yes, yes?  it is wrong in every way to say "the Japanese crisis is mitigated by a strong yen"--i would argue if the United States had a Fukushima "it could collapse the country immediately."  Reggie has done great stuff from the git-go.  I would only make one observation:  what is the relationship between higher interest rates and inflation?  Methinks there are many who believe "higher interest rates offset higher prices" as part of some mystical "equilibrium."  To me that's a source of something much greater than a mere "misunderstanding." 

Thu, 03/24/2011 - 15:40 | 1096442 Flammonde
Flammonde's picture

I am not an investor, I am a pauper.  I know that rags make paper and paper makes money.  Henry Miller famously quipped "What makes money money?"  In the context of the article above, the cannibals at the top like say Soros and Buffet find "the trade-off between their growth prospects and earnings in the next few years looks especially attractive,” by making millions into paupers then the nation state is obsolete.  Then local money too is obsolete.  Profits of course are never obsolete.  The only question for the controlling class being how do I ensure that my profits are fungible.

I do not see the Iron Heel as a Black Swan, I see it as par for the course.

 

Thu, 03/24/2011 - 15:51 | 1096429 Mercury
Mercury's picture

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, that's not entirely true.  You can build a secure or remote shelter for yourself, store up hard assets that should hold value during a currency collapse or purchase some form of insurance. In fact, most insurance is purchased in an effort to hedge against a black (or at least a fairly darkly complected) swan type event.

But it does also happen to be the case that many ignore or delude themselves into thinking that they will be able to sidestep the pernicious effects of highly probable, white (or grayish) swan events and so avoid making constructing safeguards and making provisions in the present.

Thu, 03/24/2011 - 16:27 | 1096707 Eagle1
Eagle1's picture

Insurance 1in·sur·ance. noun \in-?shu?r-?n(t)s defn: 2.  to make certain especially by taking necessary measures and precautions as in guns, lead, food, water, etc.

 

Thu, 03/24/2011 - 15:47 | 1096420 falak pema
falak pema's picture

The official argument THEN was systemic risk. That the market could not support a second Lehman Bros. collapse. That it would spiral bringing down all the dominos, all those TBTF incestuous stalwarts pedaling toxic derivatives. We saved these banks by transferring private debts to public ones in huge amounts. The so called 'Central Bank', a private bank, FED, unlike all other central banks belongs to the very banks who were in trouble. That's why this transfer occurred. Benocide works for big banks, not for state govt. In no other country of the world would this have occurred. Only in the USA, mother of reserve currency that holds the financial world by the nuts. Why the private banks have got so big goes back to Nixon 1971's Gold/$ standard abandonement and the launching of the Eurodollar market in the wake of Oil hike 1973. It took off then centered around the London City financial hub and it was these very same TBTF banks who now ran the USD through the euro dollar market. The whole behaviour of US govt. in monetary terms has been irresponsible and imperial. "Our money, your problem". Now it's blowing up in their faces. But it is not the fault of TRUE CENTRAL BANKING. They would have nationalised those bankrupt fukkers sent their CEO's to jail and cleaned out the mess. Not in the USA! So this system called FED/PD is a bastardised system that is neither free market nor centrally controlled banking. It's somewhere else. Like the leaders of USA...in a world of their own.

Black swans are the creation of black hearted elites whose hubris knows no bounds. This crisis didn't begin in EU. It spilt over due to the incredible spread of toxic derivative products emanating from the TBTF/HF/SPV vehicles ALL BASED IN USA. A financial WMD factory more toxic than nuclear Fukushima. Now the toxicity has spread world wide.

It's pathetic to pretend that Greece or Portugal or Ireland could start such a financial tsunami in EU if it had not been the outside, tip of the iceberg, expression of a systemic malaise that's sucked in the whole real estate systems and other derivative financials in EU. The PIGS sovereign debts  are just the visible  ripple effects of deeper undercurrents of the opaque, shadow banking world.

Fri, 03/25/2011 - 06:38 | 1098726 cmalbatros
cmalbatros's picture

This video explains the start of BIS etc. NOT just a US problem -  http://www.youtube.com/watch?v=YauM5dHLn1s

Thu, 03/24/2011 - 16:31 | 1096726 Robert Neville
Robert Neville's picture

The majority of the banks that own the Fed are European. Derivatives are sold by European banks. Spanish MBSs stink just as bad as US ones. There just aren't as many. I agree with the sentiment of your rant but you are mistaken if you think there wasn't and isn't total collaboration between all central banks. It's easy to blame the United States for the world's problems but other countries are far from Innocent victims.

Thu, 03/24/2011 - 18:42 | 1097230 Savyindallas
Savyindallas's picture

you're right. The International bankers know no boundaries ad have no loyalty to any country  -except maybe israel. The US is simply the sucker engine that runs the globalist agenda. when our usefulness has expired, we'll become just another banana republic - pretty far down the pecking order

Thu, 03/24/2011 - 20:34 | 1097638 Zero Govt
Zero Govt's picture

Falak  -  good posts. When you say Ireland, Portugal etc are just part of the same globalist bankers system/rape can you explain? I'm with Reggie here in that the main asset class to cause recession is the implosion of the previous easy money credit bubble in property. The property bubble took a lot of consenting adults (politicians, national bankers and the property sector itself and lastly consumers). But at the core of that was indeed international bankers.

Europe is a spiders web of retail bank loans from richer nations to the PIIGS. The PIIGS couldn't have gathered so much pork without the IB's so willing to pump easy credit into their countries. But let's be fair here, the IB's not only pumped markets abroad but at home too (see German, British and US property busts)

Are you saying there was some grand Masterplan to turn the world into credit (debt) slaves? If so looks like they fuked up by mis-judging the credit implosion then having to suckle off Govt and the taxpayer to prop up their bankrupt banks. I'm not so sure it looks like they 'had a plan' to go bust and then beg for a bailout. It looks much more like arrogance (to risk and leverage) and just plain dumb

British PM, Gordon Brown, said infamously "We have banished boom and bust" at the London bwankers bash (a year before the bust, Doh!). He was dumb enough to say it and i can assure you he was dumb enough to think it ...and probably so were the bwankers

Fri, 03/25/2011 - 08:55 | 1098692 falak pema
falak pema's picture

Look at the facts : Ireland's problems are totally due to real estate bubble that was created by essentially ONE cowboy bank with the backing of UK banking/insurance system. Ireland's problems are NOT a result of government overspend. As Ireland has no capability/desire  to use fiscal instruments to increase government revenues, it's been hamstrung by this inordinate transfer of private banking sector debt on the people, via government. Repeat this TWICE more in Spain, Portugal and you have the gist of the real estate problem in Europe's EU zone + in addition the UK market outside the euro zone! Add to this the inexistance of a nation state structure in Greece, where the country is run like the house of Atreus without any fiscal collection at all and a huge black market economy and you have the current situation in Europe sown up : a potential tsunami of 2.5 trillion USD of bad debt in real estate held by banks/govts. based on hyper leveraged toxic deals initiated in shadow banking circuits, most of it not reported on the official bank balance sheets. After the 2008/2009 crash, the governments around the world jacked up Keynesian spending to save the banks, further aggravating the macro-economic deficits, W/O generating much growth in developed world and new fiscal revenues/consumer spending. Now we have very few economic levers left to use to monitor the globally interlinked economy and too many balls up in the air, not knowing how to juggle them all. It's every man for himself and at the same time we're all shit scared and the central banks run like those Tepco guys to band aid the new cracks as they appear. Three major monetary systems in decay and a fourth one (UK) moribund. Somethings got to give...but Benocide won't admit it. As he calls the global shots, he's told them all to print away...it's mega inflation time to avoid the inevitable mega deflation that's coming...in the lead economy as elsewhere. As we are truly financially global only the IMF, current de-facto external arm of US currency reserve system, to get the world out of the sham USD currency reserve vice, will now try propose a basket currency of Yuan +EU+YEN+USD+EM...to save the world monetary system going totally 1929!

Will the US accept this humiliation and loss of its global monetary clout, resultant social/economic mayhem at home, that could destabilise its political system and it's military supremacy? You're guess as good as mine...

Thu, 03/24/2011 - 18:11 | 1097026 falak pema
falak pema's picture

The question is who leads and who follows. Whose mind set defines good and bad. Who calls the shots, who defines the rules, who referees the direction change. So guess who has been running the world since 1945? Who decided where, when, why we fought the wars; where, why and when we decided to bring the Middle east oil into the equation. As for the FED, I doubt if the main owners of the regional FEDs, notably the most important of them all : that of New York, should belong to any others than those who dominated Wall Street AND the City (Rothschild, Warburg etc.). Not the european continental banks.

Responsibility for war, money, strategic thrusts like Saudi oil, Vietnam war, Suez canal stand -off, Israeli support, ALL came from USA. In a nut shell, it was totally the american age. So please, don't dilute where responsibility lies as it would junk the facts of the last sixty years.

Admittedly the UK City banks are integral part of the system since euro dollar creation. Their share in crazy dollar dissemination central not peripheral.

But the creation of toxic derivatives beginning with Mike Milken's "junk bonds" and then Citi's SPV/CDO etc. were pure US play under Greenspan's benign low interest rate reign which practically begged all major banks to make their highly leveraged plays in devalued USD at zero rate. Ideal for carry trades and 'hit and run' derivative raids. Along with the never ending asset spiral of FIRE economy. Europe jumped in in the mid-2000 not to be left high and dry in this toxic party. They followed suit.

Thu, 03/24/2011 - 18:45 | 1097250 Savyindallas
Savyindallas's picture

Wall street is not American  -nor is congress these days  - the only fault Americans have these days is allowing our country to be host to a bunch of globalist parastic vultures. Our heads are firmly up our asses  -we will pay dearly for this.

Thu, 03/24/2011 - 16:00 | 1096519 ZerOhead
ZerOhead's picture

+1000

Concise, readable and to the point. Good on you.

Thu, 03/24/2011 - 17:43 | 1097049 falak pema
falak pema's picture

Go drink the Mubarica milk I poured out for you in that other thread : GW and evil knievel...

Thu, 03/24/2011 - 15:25 | 1096372 alien-IQ
alien-IQ's picture

Reggie,

This might be a more fitting cartoon allegory to explain the current state of things.

From A Bugs Life:

Hopper explains the world
http://www.youtube.com/watch?v=tlWZZSD4irM

Thu, 03/24/2011 - 16:13 | 1096614 BigJim
BigJim's picture

++

Thu, 03/24/2011 - 14:49 | 1096236 williambanzai7
williambanzai7's picture

The point he makes is not trying to predict "Black Swans", it is the fallacy of the Gaussian  Taliban who think the map is the territory. The same one's who are salivating over the Maiden Lane toxic shit dump and who have not crashed and burned as the truly deserve, thanks to bailout Ben's printing machines.

I have seen real live black swans but I have yet to see a central banker who doesn't look and sound like a cross between a loud jackass and scorpion. 

Thu, 03/24/2011 - 18:39 | 1097225 NewThor
NewThor's picture

Check your mailbox,

Barack Obama is sending everyone a Rainbow Swan!

THE RECOVERY IS HERE AND ITS GONNA SUCK YO DICK!

Do NOT follow this link or you will be banned from the site!