Black Swan

RickAckerman's picture

Knight Capital: Just a Warm-Up For the Big One?





Anyone betting that the global financial system will continue to muddle along indefinitely deserves to reap the whirlwind that’s coming.  As the rest of us well know, the international banking system is being kept afloat solely by political lies, stupidity, corruption, greed and, most of all, egregiously misplaced confidence. It would seem to be only a matter of time before the rotted timbers of this belief system give way.  But what will be the catalyst?  The possibility or even likelihood that the financial system will be toppled by some event no one was expecting was an implicit theme of Nassim Taleb’s widely read 2004 book.

 
Phoenix Capital Research's picture

The Bernanke Put is a Lie





One has to question… does the Fed really want to be draining Treasuries and Agencies from the banks’ balance sheets. After all, the big banks, which sit on over $200 TRILLION worth of derivative trades, only have $7.12 trillion in assets.

 
Tyler Durden's picture

670 Million People In India Without Power As Electric Grid Fails





Two weeks ago we touched upon the possibility that the US climatic deep fried black swan could soon stretch to India where the Monsoon season was 22% below normal conditions for this time of year. Today India is the locus of another flightless bird sighting following an epic powergrid meltdown which left half of its 1.2 billion people without power on Tuesday "as the grids covering a dozen states broke down, the second major blackout in as many days and an embarrassment for the government as it struggles to revive economic growth... More than a dozen states with a total population of 670 million people were without power, with the lights out even at major hospitals in Kolkata." Indicatively this is the same as every man, woman and child in America having no electricity. Twice over."Stretching from Assam, near China, to the Himalayas and the deserts of Rajasthan, the power cut was the worst to hit India in more than a decade. Trains were stranded in Kolkata and Delhi and thousands of people poured out of the sweltering capital's modern metro system when it ground to a halt at lunchtime. Office buildings switched to diesel generators and traffic jammed the roads." Hopefully, two events in a row don't confirm a trend. Although if indeed systemic, and if suddenly the Indian power infrastructure is unable to handle the local drought-related conditions, thus serving as a natural cap on economic expansion, all bets may be off as to the unlimited upside potential capacity of the BRICs.

 
Tyler Durden's picture

Deep Fried Black Swan Goes Global As Drought Spreads From US To Asia, And Now To Southern Europe





The US drought, which as previously noted, is the worst in decades, has already caused corn prices to hit a record, and soy to soar. And as we first reported last week, and subsequently Bloomberg also caught, Asia could well be next to suffer soaring food prices next as "the monsoon season, which is critical for that country’s agricultural production, is 22% below normal conditions for the year." In fact, if there is one thing preventing the PBOC from engaging in full blown easing, it is precisely the threat that just as it floods the market with excess CNY, that the supply of food will collapse causing widespread riots and chaos a la Arab Spring 2011. And now, just to make sure that the threat of full out global food crisis is complete, and the deep fried black swan has truly gone global, we find that a heat wave in Southern Europe is causing the corn crops to wither in a region that is responsible for 16% of global exports.

 
Tyler Durden's picture

The Russian Default Scenario As Script For Europe's Next Steps





Russia and the southeast Asian countries are analogs for Greece, Spain, and Cyprus, with no particular association between their references within the timeline.  The timeline runs through the Russian pain; things begin to turn around after the timeline ends. This is meant to serve as a reference point: In retrospect it was clear throughout the late-90s that Russia would default on its debt and spark financial pandemonium, yet there were cheers at many of the fake-out "solution" pivot points.  The Russian issues were structural and therefore immune to halfhearted solutions--the Euro Crisis is no different.  This timeline analog serves as a guide to illustrate to what extent world leaders can delay the inevitable and just how significant "black swan event" probabilities are in times of structural crisis.  It seems that the next step in the unfolding Euro Crisis is for sovereigns to begin to default on their loan payments.  To that effect, Greece must pay its next round of bond redemptions on August 20, and over the weekend the IMF stated that they are suspending Greece's future aid tranches due to lack of reform.  August 20 might be the most important day of the entire summer and very well could turn into the credit event that breaks the camel's back.

 
Tyler Durden's picture

As The US Drought Spreads To India, Will The Black Swan Be Deep Fried





By now it should be more than clear that the entire hope-based, short-squeeze driven, algo-mediated rally is the result of the last traces of hope: with the US economy openly in free-fall mode, housing supported only by once again increasing shadow inventory (and even that myth is starting to falter following today's existing home sales update), corporate profits just barely holding in as a result of the last possible cuts into the bone via personnel terminations now that YoY revenue numbers have once again sloped lower and the corporate growth cycle has turned, there is little sustaining the market aside from the mysterious seller of endless vol, which could be well, anyone, and some quiet prayer that China may step in and once again, like back in 2009, be the marginal economic dynamo that restarts the global economy one more time. It would do that in the conventional way, of course: by easing as much as it possibly can. There is, however, one problem with this: food prices. As everyone knows the product the PBOC pays more attention to than anything else is food: pork, soy, corn, etc., and particularly food prices. Because if there is one thing that can cause social upheavals in the world's most populous country, it is a rerun of the spring of 2011 when as a result of global easing, we saw not only the Arab Spring, but violent flare ups throughout China. Which brings us to today's topic: black swans. Deep fried black swans.  As UBS explains the record drought that has gripped America may well have far-reaching implications beyond just the price of corn in the US. If, indeed, adverse US climatic conditions spread, and it appears they already have as "the monsoon season, which is critical for that country’s agricultural production, is 22% below normal conditions for the year" it means that Asian food prices will broadly be the next commodity sector to go sky high, and with that kill any hope of either an RRR cut, or an outright reduction in the PBOC's Interest Rate.

 
Phoenix Capital Research's picture

Sorry Bulls, The Fed Will Not Engage in More QE





 

Here we are one year and over 10 Fed FOMC meetings later and the Fed hasn’t launched any new QE programs. Think about that. For over a year now the financial media has been awash with “experts” saying “QE is just around the corner, the Fed will launch QE any minute now, etc” Every time stocks rally. But. No. QE.

 
Tyler Durden's picture

Food Price Spike Dead Ahead: US Cuts Corn Crop Forecast By 12% As 56% Of America Is Under Drought Conditions





Who knew the next black swan would be deep fried? The biggest piece of imminent food inflation news over the past months, coupled with what is shaping up to be another record hot summer (for the best tracking of real-time electricity consumption primarily for cooling news we recommend the following PJM RT tracker of power load), has been the collapse in the corn harvest due to the worst drought since 1988 as 56% of America is in drought conditions. Today, the US just added some burning oil to the popcorn by cutting the corn-crop forecast by 12% to 13 billion bushels on expectations of a 13.5 billion harvest. Then again, who needs corn, when you can have cake?

 
Tyler Durden's picture

The Dark (Pool) Truth About What Really Goes On In The Stock Market: Part 4





The Island-Renaissance fusion was a vision of the future in which high-speed AI-guided robots would operate on lightning-fast electronic pools, controlling the daily ebb and flow of the market. The AI Bots poured their valuable liquidity into Island, which, in turn, made it possible for the Bots to operate at high frequencies. They fed off one another, creating a virtuous cycle that would become un- stoppable. Little-known outfits such as Timber Hill, Tradebot, RGM, and Getco would soon start trading on Island, forming the emergent ganglia of a new space-age trading organism driven by machines. Tricked-out artificial intelligence systems designed to scope out hid- den pockets in the market where they could ply their trades powered many of these systems. In the process, the very structure of how the U.S. stock market worked would shift to meet the endless needs of the Bots. The human middlemen, though they didn’t know it, were being phased out, doomed as dinosaurs. And the machines were breeding more machines in an endless cycle of innovation, as programmers pushed the boundaries of speed more ruthlessly than Olympic sprinters. Trading algorithms would mutate, grow, and evolve, feeding off one another like evolving species in a vast and growing digital pool.

 
Tyler Durden's picture

Reservations Please: Merkel, Party Of "Nein"





There are those that wait and hope and pray that there will be Divine Intervention. They cling to the belief that Germany, in the end, will back down and retreat and agree to bail everyone out. Germany’s GDP is only $3.2 trillion and this expectation, believed in by more than a few, is not only ridiculous in my opinion but a mathematical impossibility. If you consider the current EFSF program and that $300 billion has already been used for Greece, Ireland and Portugal and that this new assistance program for Spain will take it up to $425 billion you begin to get some sense of the enormity of the problem. The U.S. equivalent then for the total EFSF would be $4.318 trillion or 30.4% of America’s total GDP which would swamp our nation.  This is why when I listen to Frau Merkel say “Nein;” I believe her! It is the twentieth Summit. I predict it will be the twentieth time that almost nothing is accomplished. The beggars want to be the choosers and Germany and the richer nations will hardly allow for that.

 
RobertBrusca's picture

‘Bank’ is just a four-letter word- not a fix





Jose Manuel Barroso, President of the European Commission, thinks Europe needs a unified banking system.

But how can financing be a solution for a Zone with a fatal fundamental flaw? Banking cannot save the euro-Zone. This proposal is only the distraction du jour.

Europe continues be unable and unwilling to look at the core problem in the Zone which has morphed into huge competitiveness differences that are creating havoc.

The easiest fix for this is a break up. For the Zone to survive this will require a lot of cooperation and frankly it does not seem close to doing it.

 
Tyler Durden's picture

Time To Load Up On Denmark CDS - Moody's Cuts Nine Danish Financial Institutions: Luxor Thesis In Play





Last time we looked at Denmark it it was in the context of Luxor Capital which had some very ugly things to say about the Scandinavian country in "Rotten Contagion To Make Landfall In Denmark: CDS Set To Soar As Hedge Funds Target Country." Now, 6 months later, Moody's has finally gotten the memo: "Moody's Investors Service has today downgraded the ratings for nine Danish financial institutions and for one foreign subsidiary of a Danish group by one to three notches. The short-term ratings declined by one notch for six of these institutions. The rating outlooks for five banks affected by today's rating actions are stable, whereas the rating outlooks for two banks and for all three specialised lenders affected by today's rating actions are negative  The magnitude of some of today's downgrades reflects a range of concerns, including the risk that some institutions' concentrated loan books deteriorate amidst difficult domestic and European conditions, with adverse consequences on their ability to refinance maturing debt. The latter concern is exacerbated by structural changes in the terms of Danish covered bonds and the mix of underlying assets that lead to increased refinancing risk. While Moody's central scenario remains that financial institutions show some resilience to what will likely be a prolonged difficult environment - and the revised rating levels for most Danish financial institutions continue to reflect low risks to creditors - today's rating actions reflect the view that these risks have increased."

 
williambanzai7's picture

ZH EXCLUSIVE: EURO BRieFiNG WiTH BaNZai7 AND THe LiMeRiCK KiNG





BREAKFAST NOT ADVISABLE

 
Tyler Durden's picture

Mark Spitznagel: The Austrians And The Swan - Birds Of A Different Feather





What is a black swan event, or tail event, in the stock market?

- It depends on who’s asking.

- To those familiar with Austrian capital theory, the impending U.S. stock market plunge (of even well over 40%)—like pretty much all that came before in the past century—will certainly  not be a Black Swan, nor even a tail event.
- Nonetheless, the black swan notion is paramount—in perception: Market participants’ failure to expect a perfectly expected event—that is, they price in only Anglo swans despite the  Viennese bird lurking conspicuously in the weeds—much like what is happening today, brings tremendous opportunity.

 
Tyler Durden's picture

Nassim Taleb Is Angry That Not Even John Gotti Got Paid As Much As JPM's Ina Drew





Until this point virtually every pundit and financial journalist and blogger has opined on JPM, its prop trading operation (as first exposed by Zero Hedge), and its massive loss which due to its pair trade nature has potentially unlimited upside, but likely will top out at $5 billion (as also first explained by Zero Hedge over a week ago and subsequently by the WSJ). The one person who has kept silent so far was the man whose entire philosophy predicted just this epic flare out, by revolving around the assumption that humans operate under the illusion that they understand rare events: they don't (for more details read his books The Black Swan and Fooled by Randomness which by now have been read by all traders in the world, but apparently not those formerly in charge of JPM's CIO unit). Courtesy of this BBC Newsnight interview, he breaks his silence and shares his opinion, which as one may expect are far from laudatory: "JPM has 10-15 times the risk of a regular hedge fund... They should not be using my to play in something that is way too dangerous and too complicated for them... What I want [for JPM] is the following - skin in the game. People when they make money should get the upside, should get the upside; and people should be harmed when they have the downside. Hedge funds have that."... Finally Taleb loses it by comparing Wall Street to the mafia: "I am not an idealist. I am someone who doesn't want to be paying the $14 million dollars for this lady Ina Drew, which is more than John Gotti the mafioso got." Well, neither does anyone else. But, sadly, even Nassim now realizes that it is the financial mafia who owns this country and calls all the shots.

 
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