Posted on 03/22/2011 1:40:18 PM PDT by blam
Fruitlessly Searching For Black Swan Events
By Bill Bonner
03/22/11 Paris, France Black swans white swans and big, nasty birds
The weather is beautiful here in Paris. The sun is shining. People are returning to sidewalk cafes. Trees and flowers are beginning to bud out and bloom. Early spring in Paris can be delightful or horrible. Be sure to pack a warm sweater and a coat and hope you dont need them.
Prepare for the worst; hope for the best. That is our unofficial motto, here at The Daily Reckoning.
Dow plus 178 points yesterday. Oil over $100. The euro is rising (dollar falling). Gold is back at $1,426.
And Warren Buffett is the latest to get on board with our Trade of the Decade or at least, half of it.
Warren likes the buy side. Buy Japan, he says. Its cheap.
But watch out, Warren; the yen is not cheap. You could win on the stocks and lose on the currency.
Thats why we covered both sides in our Trade. Buy Japanese stocks. Sell Japanese bonds. And be prepared to wait.
Warrens recommendation is typically positive and upbeat. He thinks the worst is passed in Japan. Hes now hoping and expecting better times. Japans stocks are a good deal, he says. You get a lot for your money. Things will improve.
Our view is not exactly cynical, but we dont think the disasters are finished in Japan. We prepare for the next one.
What, asked an astonished French colleague. Theyve had the biggest earthquake ever the biggest tsunami ever and a nuclear disaster too? What else could happen a giant meteor?
Our friend Nicholas Taleb has added black swan to the vernacular. Lately, there are so many of them, we barely have time to recover from the excitement of one black swam before another one bites us on the derriere. There seems to be a whole flock of them.
A reporter recently asked a popular analyst what black swans do you see on the horizon? Daily Reckoning readers will recognize the absurdity right away. A black swan is something you cant anticipate. It doesnt present itself as a possible problem, on the horizon. You cant see it. Instead, it comes out of the blue, a problem you didnt imagine at all.
But now, the whole world is wasting its time looking in the bulrushes for more black swans.
They would do better to examine the feathers of those snow-white birds in front of us. Theyre imposters. Theyre frauds. Theyre white swan impersonators. Theyre really gray, nasty swans with mean tempers and prone to sudden acts of violence
What do we mean?
Well glad you asked.
For one thing, there is QE2 swimming around with a bright, new coat of white paint. Heres the latest from Bloomberg:
Bernanke in Testimony Can Show Ron Paul How QE2 Works in Markets
The next time Federal Reserve Chairman Ben S. Bernanke appears before Congress, here are a few visual aids he can use to show critics that quantitative easing is working:
The Standard & Poors 500 Index of stocks has climbed 18 percent since he said Aug. 27 that additional asset purchases might be warranted.
The risk premium on high-yield, high-risk bonds has narrowed to 5.16 percentage points from 6.81 percentage points, Bank of America Merrill Lynch index data show.
Inflation expectations have jumped by 44.4 percent.
The unemployment rate has fallen to its lowest level in almost two years.
So much for 2008 Republican vice-presidential candidate Sarah Palins assertion that the dangerous experiment wouldnt magically fix economic problems.
Maybe Bloomberg has its tongue in its cheek. Or maybe it really thinks QE2 is a great success. But the jump in inflation expectations is not necessarily a good thing.
Yes, stocks are up. And yes, so are junk bonds. You put in $100 billion per month; you have to expect something to happen. But what we see is an increase in speculation and some bouncing around on the hard pan of a Great Correction. And yes, unemployment as measured by the Labor Department is down to its lowest level in almost two years. But 2009 was hardly a good year for jobs. And there are still 7 million fewer jobs today than there were before the Great Correction began in 07.
No jobs; no income. No income; no shopping. No shopping; no real growth in the consumer economy.
The swan painters say Bernankes QE2 has boosted stock prices (right!) and that higher stock prices increase Americans wealth (right again) and that wealthier people will buy more, leading to real GDP growth (uh not quite).
Relatively few people own stock portfolios. Those who do are aware that stocks go up and down. Theyre buying stocks, but they arent necessarily convinced that this wealth is spendable; it hasnt been around that long.
Meanwhile, far more people own houses than stocks. And houses are going down. Heres the news from Reuters:
Sales of previously owned US homes fell unexpectedly sharply in February and prices touched their lowest level in nearly nine years, implying a housing market recovery was still a long off.
The National Association of Realtors said Monday sales fell 9.6 percent month over month to an annual rate of 4.88 million units, snapping three straight months of gains. The percentage decline was the largest since July.
The median home price dropped 5.2 percent in February from a year earlier to $156,100, the lowest since April 2002.
If the price declines persist, even with the job market recovery, that could hamper recovery in the housing market, said NAR chief economist Lawrence Yun.
Lets see, nearly an entire decade of house price gains have been wiped out. Now one out of 7 houses in Nevada is empty! And next month begins the next big wave of resets, recasts, and foreclosures.
Is QE2 a happy, nice, white swan? Could it have a black heart? Maybe this swan is harmless, but we wouldnt get too close.
Well return to this tomorrow
and to Japan, which faces a Godzilla bird of its own
Sheesh. I thought this was going to be about the movie. lol. I seriously thought people were having Black Swan parties or something.......Yieks. Actually glad I was mistaken. I stopped reading after the first couple sentences and now have to get back to reading since I was not focused on what the story was about since I was way in left field.
"Smart financial minds have been expecting a Japanese economic tsunami for the last few years. John Mauldin described Japan's predicament in early 2010:
"I refer to Japan as a bug in search of a windshield. I am not so sure about the timing, however, as the economic and fiscal insanity that is Japan may be able to go on for longer than many think possible. But to me it is not a question of whether there will be a crisis, but when there will be one. This year? 2011? 2012? I doubt Japan makes it to the middle of the decade with a very serious and sad day of reckoning.
Love that place - been a long time though!!! Someday I hope to go back!
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