Where Are The 'Black Swans' Hiding?

Tyler Durden's picture

While being capable of imagining a 'black swan' event implies its non-existence; given the level of groupthink consensus agreement that the bond bull is dead, inflation is back, central banks are maxed out, and global fiscal stimulus will save the world, we thought a look at some of the more unsusual, unpredictable expectations for 2017 was worthwhile...

Following Nomura's list of "Grey Swans", Reuters' Jamie McGeever looks across the analysts' outlooks for 2017 and finds these non-consensus wrinkles in the narrative...

1. Bond yields to fall?

HSBC, which correctly called the recent slide in U.S. bond yields to historic lows, says bond yields may well rise next year and expects 10-year Treasury yields to hit 2.5 percent.

But only in the first quarter.

After that, HSBC's bond strategist Steven Major reckons they will fall back to 1.35 percent because 2.5 percent would be unsustainable under tightening financial conditions, dragging on the economy and constraining the Fed. A bold call.

2. U.S. 10-year yield at 4 pct?

"Forget the boring old investment bank research for 2017; find out what the greatest minds of City Index think are the best trading opportunities for the year ahead!" They certainly don't hold back: Stocks get "slammed" as the end of the bond bull run "starts to bite" and pushes 10-year U.S. Treasury yields to 4 percent; And the oil producers' agreement to cut output falls apart and crude plunges to $15/barrel.

3. Four Black Swans

Economists at Societe Generale illustrate a graphic with four "black swans" that could darken the market landscape next year. The tail risks they see as most likely to alter next year's outlook stem from political uncertainty (30 percent risk factor), the steep increases in bond yields (25 percent), a hard landing in China (25 percent), and trade wars (15 percent).

4. The euro also rises

"The dollar is overvalued versus other G10 currencies" is not something you hear too often.

But it's the view of Swiss wealth management giant UBS, which predicts the euro will end next year at $1.20, drawing support from the ECB tapering QE. Undervalued sterling will rally too, picking itself up from its Brexit mauling.

5. The "good carry" in EM

Few dispute that a higher dollar and U.S. yields next year will hurt emerging markets. Goldman Sachs expects both, but two of its top 2017 trade tips involve buying EM assets.

One is going long on an equally weighted FX basket of Brazilian real, Russian rouble, Indonesian rupiah and South African rand versus short on an equally weighted basket of Korean won and Singapore dollar to earn "the good carry". The other is going long Brazilian, Indian and Polish equities.

6. $1 trillion U.S. earnings bonanza

How much offshore earnings can U.S. companies bring back if president-elect Donald Trump follows through with his pledge to cut corporate tax?

About $1 trillion, according to estimates by Deutsche Bank. This could give U.S. stocks, already at record highs, another shot in the arm. Citi reckons global equities will rise 10 percent next year, led by developed markets. A 10 percent rise in the dollar and cut in U.S. corporation tax to 20 percent could add 6 percent to global earnings per share.

7. China shop bull returns

Chinese stocks will bounce back into a roaring bull market, predicts Morgan Stanley. It reckons the Shanghai Composite index will end next year up 36 percent at 4,400 points, with EPS growth at 6 pct.

This is predicated on there being no significant U.S.-China trade protectionism conflict, although the threat of one and the relatively early stage of the Chinese recovery will keep domestic monetary conditions loose in the first half of 2017. Tougher property sector rules are also starting to divert wealthy individuals' capital towards stocks, MS says.

8. Yuan over the eight

Many FX analysts expect the Chinese yuan to continue falling, but few see it breaking on the weak side of 8.00 per dollar. Those at Deutsche Bank do, albeit not until 2018, though that would still mark a sizeable fall next year for a currency tightly controlled by Beijing. A rising dollar is one side of the equation. And on the other, Deutsche reckons Beijing will not want to see reserves fall below $3 trillion, meaning capital outflows will hit the currency harder than the last couple of years when reserves have been used to cushion the yuan's fall.

9. Bremain?

Here's the scenario: Britain stays in the European Union. Goodbye Brexit, hello Bremain. It's highly unlikely, and analysts at Nomura don't think it will happen. But it's one of 10 potential "gray swan" events for next year they reckon investors should at least consider. "As 2016 was the year politics 'stumped the consensus', why couldn't 2017 do the same?"

One possible path to such an outcome would be UK-led, via a general election, perhaps triggered by court proceedings or whether London would need Scottish and Welsh parliaments' consent. Alternatively, the EU could offer the reforms the UK has been asking for all along, tempting Britain to stay. One related investment idea could be to go long sterling/yen, Nomura says.

*  *  *

While we would like to be able to predict black swans, by definition they are unpredictable. However, its close cousin, the grey swan, can be envisaged. The scenarios above are the unlikely but impactful events that lie outside the usual base case and risk scenarios of the analyst community.


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Thoresen's picture

There are two black swans here on a neighbouring lake.
I suspect that they are wing-clipped.

Troy Ounce's picture


Have a closer look, they might be stuffed.

Like any risk in the construct we built

Captain Chlamydia's picture

False flag Berlin - suspect left his passport.... Yeah right.....


Berlin market attack: Police searching for 24yo Tunisian man after finding ID in truck – reports
Bank_sters's picture

Didn't know that.   Fascinating.

I am more equal than others's picture


Nassim Taleb is laughing.  Why, because a black swan event is by its very nature unkown - unpredictable - until it occurs.  Fat tails after all predictable events have been exhausted. 

logicalman's picture

I bet it's one of those indestructible ones, just in case the truck caught fire.

Doña K's picture

Maybe spray painted black swan

wwzmach's picture

as an equal opportunity swanner i think we need to consider some white swans also.... white swans lives matter too.


francis_the_wonder_hamster's picture

When doing my own market forecasts for 2017, I thought I saw a couple of brown swans.

Turned out they were buzzards.

EuroGuy's picture
EuroGuy (not verified) Dec 21, 2016 4:35 AM

Happy Winter Solstice!!!!

Xmas story = Fake News that made it big.

pachanguero's picture

The rising USD, abeit for all the wrong reasons IS the Black Swann which has showed up now.  No one was predicting this other than Rich Ackerman.

indygo55's picture

I'm pretty sure others saw that as well, such as a guy named Jim Willie.

whatsupdoc's picture

There are no black swans.  There is nothing that will prevent the same old same old.  I'm in a trance.


Batman11's picture

2008 – wasn’t a black swan.

Steve Keen saw the private debt bubble inflating in 2005. He had the right theory and it wasn’t a “black swan” to him.

In 2007 Ben Bernanke could see no problems ahead and his models didn’t include money and debt. He had the wrong theory.

You can see what Steve Keen saw here:


See it’s obvious, when the money supply starts rising rapidly a credit bubble is forming (money = debt).


Someone let Ben Bernanke know.

Batman11's picture

Using experience to learn some lessons about imaginary wealth and a nations housing stock.

UK -1989, Japan -1989, US – 2008, Ireland - 2010, Spain - 2012

When the dust settles the nation’s housing stock is pretty much the same as when it started because there was no real wealth creation, it was just blowing imaginary wealth bubbles.

Lower interest rates and loosening lending criteria allow more money to be injected into the nation’s housing stock through mortgage lending.

The money created by all the new mortgage lending feeds into the economy and adds to the general mania of the housing boom and causes the whole economy to boom.

Housing becomes more affordable temporarily, when interest rates rise the bubble bursts and the imaginary wealth evaporates as housing becomes less affordable and once the carrot of capital gains disappears the speculators head for the exit.

The whole economy can then expect to enter debt deflation as the burden of excessive mortgage payments drags down the whole economy.

The money creation in the housing boom adds positive feedback by its reinforcing the upward trend as its effect spreads through the whole economy due to the expanding money supply.

The money destruction in the housing bust adds positive feedback reinforcing the downward trend as its effect spreads through the whole economy due to the shrinking money supply.

The bankers add another positive feedback factor by relaxing lending criteria into the housing boom and tightening lending criteria into the bust. They always do it and never learn.

The US did learn one lesson from 2008, mortgage rates fixed for the full term make the housing market much more resilient to interest rate changes. The UK hasn’t learnt this lesson. With Central Bankers now using interest rates to control the economy this is important, wake up UK.

If you want your national economy to run well, the last thing you want is housing booms and busts.

The independent Central Banker will nearly always be asleep at the wheel and it is best for Governments to keep an eye on this situation developing.  Canadian, Australian, Swedish and Norwegian independent Central Bankers are, as usual, asleep at the wheel, not realizing the debt deflation that will follow when interest rates rise and their housing markets crash.

It is the money creation that accompanies these booms that makes them feel so good and gives us a warning when they are occurring. Look at the US money supply leading up to 2008:


See it’s obvious, when the money supply starts rising rapidly a credit bubble is forming (money = debt).

Nip it in the bud to avoid debt deflation.

Central Bankers don’t really understand the mechanics of money and debt so someone else will need to do the job.

Steve Keen saw the private debt bubble inflating in 2005. He had the right theory and it wasn’t a “black swan” to him.

In 2007 Ben Bernanke could see no problems ahead and his models didn’t include money and debt. He had the wrong theory.

Irving Fisher looked at the debt inflated asset bubble after the 1929 crash when ideas that markets reached stable equilibriums were beyond a joke.

Fisher developed a theory of economic crises called debt-deflation, which attributed the crises to the bursting of a credit bubble.

Hyman Minsky came up with “financial instability hypothesis” in 1974 and Steve Keen carries on with this work today.

Understanding the mechanics of money and debt:

From the BoE:


If you want to really understand it buy ...........

“Where does money come from?” available from Amazon.

JRobby's picture

Bernanke and all of the people and banks listed did not and do not have a clue. It's like "story hour". Yellen is breathtaking in her ignorance. 

P.K.Snosage's picture

"Tasseography, the fortune-telling method that interprets synchronistic patterns in tea leaves, that almost became extinct with the arrival of the Teabag, is making a recovery. The primary catalyst cited for the recovery of the ancient art form, has been the catastrophic failure of the traditional polls and the so-called prediction markets in recent years vis a vis events such as Brexit and the 2016 U.S. Presidential Election. Hedge Funds, many of whom relied heavily on the traditional pollsters with regard to these two seminal events, and duly had their fingers badly burnt, are appointing in-house tasseographers, many of whom are immigrants from conflict zones such as Syria and Afghanistan. Andrew McMorran, a leading Hedge fund manager, recently commented:For the price of a cup of tea, we have been able to produce predictions of such a high standard, that that which was unknown is now known. Citing the recent Brexit and U.S. Presidential Election votes, McMorran related how his companies' in-house tasseographer, was able to predict both results, in the process allowing his company to place a number of highly contrarian trades that reaped big dividends; There was none of this Nate Silver less wrong nonsense, the leaves said Brexit and Trump with an implied probability of 100%, and that was that. We acted accordingly. Looking forward to the 2017 French Presidential election and McMorran kindly shared the news with us that his in-house tasseographer was currently reading the leaves and suggesting that Fillon had a current implied probability of 100%; On the back of this reading, we will be going into the New Year long the Euro he said."


Source: Hedge Fund Tatler

JRobby's picture

I think they are burning some leaf too

fattail's picture

Tea leaf reading.  Yeah that's a down vote.   Are you fucking kidding?  Where can I sign up to pay $20 a month for that newsletter?

Talk about losing your confidence as a fund manager.  Reminds me of the seen in Tin Cup when Kevin Costner is wearing every golf gadget known to man because he played a bad round and lost his confidence.

Andrew McMorran WTF?  Man we have all been there.  Stop wallowing in your self pity, buck up, and get to work.  You weren't the only fund manager having a hard time.  It was a tough environment.

Tylers, are there no standards for commenting on this board?

Occams_Razor_Trader's picture

Flipping a coin for direction and using sound money management, letting profits run and cutting loses short, can grow an account.

Whatever system you use, confidence and sticking to the rules is the key, but I get it, sounds bizarre.

amanfromMars's picture

The Black Swan you won’t and don’t see AI Networking is the one that is currently always busy turning over markets and creating waves of tides with futures ebbing and flowing with Absolutely Fabulous Fortune Hunters and Cloud Crowd Gatherers ……. http://forums.theregister.co.uk/forum/1/2016/12/21/wassenar_negotiations_fail/

I Kid U Not. …… but do not expect in print, any time soon in the near future, …. NEUKlearer HyperRadioProActive IT for Crack Crash Testing Hack Dummies. Such is Securely Classified .... Way Beyond MkUltra Top Secret Special Compartmented Information and Deadly Dangerous to Know.

Not Goldman Sachs's picture

It's all priced in.  And cb backstopped.

Cassandra.Hermes's picture

Comrades, we are the black swan, we outgun governments 3:1, and we almost done it by electing anti-hero as president, it needs just matchstick to trigger unsatisfied and we have it, president's twitter. So be ready! Two party system is crumbling!!

Species8472's picture

People are clueless about what a black swan is.

If you can conceive of it happening and are discussing the possibility then it's not a black swan!

bankbob's picture

A black swan is something that you never believed was possible until it bit you on the ass.

If the European Union collapsed like the USSR and dissolved, that would be a Black Swan.

NoWayJose's picture

The globalist elite are waging a war against humanity - a war they have already won, even as battles are being fought. They control the politicians and they control the central banks.

Other than giving the UK people a vote, is Brexit real?

Other than the US people electing Trump, the same globalist controlled Congress returns.

Olde kingdoms died when the kings spent the wealth of their people (gold) on luxury and wars. The new globalist elite cannot die as long as they can print paper money and control the markets in which paper money is traded.

Codwell's picture

We've been in a Keynesian black swan event for the past decade. 

yngso's picture

There are many more potential meltdowns worldwide.

I doubt that the Brits are stupid enough to go cold turkey on market access, so I see a huuuge compromise coming, basically a face-saving exercise.