Friday, January 16, 2015

Black Swan events

I think these recent events qualify as Black Swan events:

1) The Russian ruble collapse.  As recently as November, the ruble traded at about 45 to the dollar.  Today it is about 65.

2) Gold finally seems to have bottomed out at about $1178 on 12/23/14.  Today it is about $1260.

3) Oil prices peaked at about $115/barrel in June 2014 before beginning a slow decline until October and then declining more rapidly until today they are below $50/barrel.

4) The Swiss franc rose 30% yesterday against the euro in a matter of minutes, and today seems to be about equal to the euro, up from 0.833 yesterday, for a net increase of 20% overnight.

5) Copper prices have plunged from $2.90 to $2.60 in less than a month.

6) The euro is down against the dollar from $1.27 at the end of October to $1.16 today.

7) Initial jobless claims are starting to rise.

8) Interest rates on US Treasuries are dropping.  The yield on the 30-year bond is now at 2.4%, probably the lowest ever.

9) The stock market is plunging.  I kept trying to call a high on the Dow, but it finally looks like we have it on 12/26/14 when it closed at 18,054.

10) The ECB is about to unleash a massive bond buying spree.

11) Bitcoins have lost 50% of their value in the last 6 months and now are worth only about $200.

What does this all mean?  Well, a recession is probably beginning.  Initial jobless claims are the main indicator.  And the biggest increase in jobs the last few years was in the energy sector, where there will now be massive layoffs.  The almighty US dollar is increasing in value, which hurts anyone who borrowed in dollars.

I started this blog about 5 years ago, concerned that the whole financial structure would collapse.  I guess that will never happen.  But we can anticipate that when the recession finally starts to bite later this year that the deficit will start to increase again as tax revenues decrease, and the US debt will start to climb rapidly again.

There is a phrase, "the worm has turned", whatever that means.  Something weird happened in April 2013, when gold dropped almost overnight from $1600/oz to $1400/oz and then to $1200/oz over the next 2 months.  The situation has now reversed itself and is back to normal.  SNAFU means "situation normal, all fouled up".

I am still expecting some sort of financial crisis on September 11, 2015.

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