The King of Saudi Arabia finally dying could really shake things up. He was hospitialized a couple days ago
Another black swan. OPEC dissolves.
The Rams make the playoffs via wildcard. The 49ers finish above .500 without Harbaugh. Seattle wins an unprecedented 3rd Superbowl in a row (I guess that’s early 2016 but roll with me).
You heard it here first.
Re: markets:
I don’t think this will happen but everyone would crap themselves severely if interest rates went up in 2015. I think they should be going up now but will go up in 16/17 more likely.
My other 2015 capital markets black swan event is the SEC making a renewed effort to crack down on the hundreds of stock frauds in the market. You can take it to the bank that this won’t happen.
*Nods* It is known.
Well if we are talking sports, biggest Black Swan of 2015 will be the Habs vs. Flames Stanley Cup Final.
Putin is a student of history. He knows that the reason Soviets won WW2 was because of US economic help and massive sacrifcie. His economy is sh1t. He won’t do anything crazy until he will rebuild economy. My prediction, his stance will soften and he will try to improve russian economy before doing another ‘Crimea’ adventure in Ukraine
What makes you so sure Geo? Interesting how auto sales have bounced back to pre-recession levels. Genuinely interested here - what would you look at for some early warning signs?
^ I’m not sure, that’s why I propose it as a risk. Anecdotally (and somewhat supported by what I’ve read) I see lots of folks deep in negative equity on autos. The reality is your average $60k/year Joe Six pack can’t afford a new $30k car every three years, but he’s buying one. Eventually that negative position will build (because he finances over 72 or 84 months to afford the car) to the point he cannot refinance and he delays purchasing a year. Folks moving back to more traditional car replacement timelines would devaste the auto industry. And I think autos may be one of the first places we see people return again to a more fiscally prudent position.
this is all that will matter for 6 months…
^ I’m not sure that’s a Black Swan. I’m pretty sure they’re figured to win.
the market hasn’t clued into this, or priced this in yet apparently. we’ve known this for weeks but the market is tanking now? because of the collateral damage this event could produce, much of which isn’t talked about or understood, i think it is a black swan. black swan doesn’t mean the initial event has to be 100% unexpected, it also means the collateral damage is unexpected. most people don’t really think about the full extent that a Grexit would have. it’s like saying in 2007, yeah, subprime sucks and i wouldn’t want to own subprime mortgages right now, but i’ll buy houses and REITs nonetheless because come on, high quality real estate.
all i know is that for the past 2 years, every wholesaler on the planet has been selling Europe funds and every broker has been buying them. when i ask “why Europe? why now, before the unsolvable Greek situation is solved and when even in mid-2013, Syriza led the polls?”, they say, yeah but valuations, look at the valuations! and to that i say, you’re dumb. valuations in a price and economic depression could easily be 50% of current levels even without the panic. with the panic, we could be looking at 80-90% lower, Japan style.
European equities would not have seen the inflows they did if the market didn’t see a Grexit was a black swan event.
terribly written, sorry.
I just don’t buy a Grexit being that big a deal. France exiting would be a big deal. But Greece is just a little piece of fluff attached to the Euro engine. The removal of it won’t do anything positive or negative, other than maybe satisfy Germans sick of bailing out these basket cases.
Let 'em sink on their own IMO.
Here’s why it’s a big deal: because the crisis was never solved.
Debt levels are significantly higher now than they ever were in the peripheral states, they’re still running significant deficits, unemployment is still majorly high, and all that’s been done is to kick the can down the road. Structural reforms have been non-existant. The main problem that got them into this mess was the priced uncompetitiveness of their labor force and structurally that has still not been addressed. Everybody just agreed to forget about it for a minute.
Now, with Greek unemployment at 25%, people are starting to remember. They’re also realizing that the assumption that people with no job, no prospects, and the inability to feed a family at a time when govt support is slashed are probably unlikely to just sit there and take foreign govt imposed austerity for the sake of a promised future in 10 years when they live in a democratic society. Particularly when the governments imposing this are still growing and chugging along, it just makes too easy of a political pinata. And it’s not just Greece, Spain and Italy are most likely broken beyond repair when looking at their fiscal balance sheet as well.
So the root of problem comes from the fact that if Greece leaves, all of those Eurozone garuntees that people just seemingly take for granted on 10 and 15 year debt start to look a little flimsy when you realize a country can just bizounce at any point on this long road if the people get antsy and all that rhetoric about “commitment to the Eurozone” looks more like “commitment to the Eurozone*”. This could easily justify a 3% increase in yields / funding costs for peripheral governments, which is just enough in this very intricate balancing act to make the whole thing unsustainable, at which point it becomes a self fulfilling prophecy. It’s important to keep in mind throughout this that these countries do not have control of their printing press so all of this debt is essentially foreign denominated debt which adds a whole lot of immediacy to any stressors they face.
I agree in that it may be inevitable, but I also agree that it may be the Lehman to their crisis.
2015 surprises (not Black Swan):
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EM companies with USD debt, particularly those with low USD receipts through natural business ops, instigate an EM corporate debt crisis as the USD continues to rise.
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Bezos decides AMZN is going to earn a profit this year, and does so easily…maybe $6B? Enentually the market gets tired at those sales multiples, and he knows it.
agreed. it’s all about perception and trust. without it, the ECB will have to buy $5 trillion in bonds to make everyone happy. i’m not sure the ECB has the ability to buy $5 trillion in bonds given it has to answer to the Bundesbank. if Greece goes down, Cyprus goes down, and Portugal and Spain are not far behind. the rest of the PIIGS+F will be back to yields that make their debt loads unsustainable and will eventually go down as well.
if Greece goes down, without rampant ECB bond buying, which probably won’t actually happen, the deflationary pressures will be unlike what we’ve seen since the Depression.
this is why recent Merkel comments state that so long as Tspiras is willing to discuss the issue and bend a little bit, a new deal can be made. So basically as long as Tspiras allows the EU to save some face, he’ll get his way for the most part. Merkel knows that Greece has all of the power and the rest of the Eurozone is at Greece’s will. Tspiras will be seen as a God in Greece when he makes the Eurozone establishment bend just like he said he would. He will be in power for a long time if he gets voted in. him being in power and him making the EU bend is very bad for the Eurozone in the long-run, but it would solve the near-term problem of debt unsustainability of the peripheral nations. Eventually, this reality could be the trigger that forces Germany to leave the union.
Greece’s GDP is 1.3% of the Eurozone GDP. A fart in a windstorm. I get all these sentiment and trust and whatever analysis, but fundamentally Greece is irrelevant. The EU is better off without Greece and Greece is better off without the EU. Let’s get this over with and stop pretending its going to work.
Well we’ll have to agree to disagree.
subprime mortgages were only ~10% of the residential mortgage pool. the residential mortgage pool was only part of the total mortgage pool. it ended badly despite subprime being a small slice of the pie.
it has to do with price levels. if Europe’s LT inflation outlook goes from 1% to -2%, European stocks would decline meaningfully and so would NA stocks.
you may be right that the Grexit is nothing. but owning an overvalued market going into it is just plain dangerous. i mean, how much upside are you missing out on in the face of possible 50%+ declines if you’re wrong? it’s not like i’m selling all stocks but there is danger there and to see it and not act when you can is far from prudent.