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Black Swans, birds of prey

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( June 3, 2015)  Black swans are events that greatly impact markets suddenly and without warning, except that in hindsight they should have been predicted.  It is often said that the World Financial Crisis of 2008 could not have been seen coming.

Yet former Congressman Ron Paul had predicted it in many interviews and speeches, so black swans can be foreseen.  But, even in Ron Paul's case, he didn't say when it was coming, only that a financial crisis was pending because of the Fed's manipulations of the money markets.

(Interestingly, Ron Paul is now promoting the work of Porter Stansberry because Ron sees the potential for a worldwide currency crisis.  Still, he notes that he cannot pinpoint when it will happen, only that it will, making  a strong case for everyone having at least some gold and silver on hand.)

Today many black swans are circling. Three ominous ones include a possible bear market in stocks, more fighting in Ukraine between Russian-backed eastern Ukrainians with strong attachments to Russia and Ukrainians supported by the US and NATO, and a US-China confrontation in the South China Sea.

The Stock Market

As for stocks, they are highly-valued by many measures, heights that have been seen before the start of past bear markets.  Further, it has long been taught that the stock market is the best prognosticator of future economic activity.  If stocks decline, look for the Fed to put off any interest rate hikes until 2016.

More bad economic news, such as the just revised GDP numbers for the first quarter being negative 0.7% instead of the anemic 0.2% increase  previously reported, could prompt Yellen to suggest that rate hikes could be put off until 2016--depending on economic data.  Fed chairpersons have always given themselves outs, never making concrete predictions.

Some Fed followers have said that FOMC members would love to hike interest rates .25%, call it a "one-and-done" and move on to giving speeches about how the Fed is keeping a close eye on economic data.  But, raising interest rates a mere .25% could send a scary signal to investors, one being that other rate increases are to follow.

Ukrainian Fighting

As for fighting in Ukraine, presently there is a sometimes-followed truce.  However, last year shortly after the cease fire was agreed on, Air Force Gen. Philip M. Breedlove, the Supreme Allied Commander of NATO, said that Russia was using the cease fire to "reset and reposition while protecting their gains."

In testimony before the Senate Armed Services Committee, Breedlove said that "Many of their actions are consistent with preparations for another offensive."

One credible thought is that Russia wants a land corridor between its mainland and the Russia-annexed Crimea, which is important to Russia because it bases its naval Black Sea Fleet in Sevastopol, a Crimean peninsula city.

Significant to secure the corridor is the city of Shyrokyne, which is being held by Ukrainian national guard units.  Last month, 300 US paratroopers from the Italy-based 173rd Airborne Brigade were in Ukraine to train national guardsmen.  This fulfilled a promise by General Breedlove that the "United States will send troops to help respond to Russian aggression in Ukraine.”

Meanwhile, Russian president Vladimir Putin recently signed a decree making it illegal for Russians to "speak, write or broadcast about troop losses in peacetime." It is estimated that 220 Russian soldiers died fighting in Ukraine.

Russia has seen 220 soldiers die in Ukraine, and the US has sent troops to Ukraine to train guardsmen.  Senator John McCain, head of the Senate Armed Forces Committee, supports sending arms to Ukraine.  What could be a uglier black swan than a US-Russia confrontation in Ukraine?

Increasing the likelihood that Ukraine could become another black swan is that oil is involved.  According to a May 17, 2014 article in the New York Times, with the annexation of Crimea Russia gained about 36,000 square miles of Black Sea offshore holdings, which had already been explored by major western oil companies.  Some petroleum analysts say the area’s potential may rival that of the North Sea.

China, the South China Sea and the yuan

On the other side of the world, tensions are rising between China and the US over the latter’s increasing involvement in the political maneuverings in the South China Sea, where China is building artificial islands in what the US and most of the world sees as international waters.

Additionally, there is  the growth of the Chinese yuan’s influence as a globally traded currency, which at this time is not a major attack on the dollar but certainly could result in a chink in the dollar's armor that could become a chasm over time.

Further, there is speculation that China is planning to wrest control of the global gold benchmark pricing system away from London with a launch of a Shanghai gold fix later this year.  Indeed, there is potential for conflict between the planet's two most powerful countries.


Speculation about possible black swans is interesting; regardless, stocks are overvalued by most indicators and the metals are near three-year lows.  Now seems an appropriate time to consider moving from stocks to physical gold and silver, or at least adding to physical holdings.


-Bill Haynes, June 3, 2015


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