Coming into this weekend we had an “information overload” of sorts. So many moving parts all of which are important and any one of them capable of being THE black swan that “blindsides” the markets even though they are nearly all visible and in the public domain.
Last week we had a myriad of news that came out regarding Russia and the Ukraine. Russian troops were amassing along the Ukrainian border yet denials came from Western sources that this was true. Crimea will vote Sunday whether or not to secede from Ukraine and join Russia. President Obama has said that this vote is “illegal” and breaks international law while John Kerry says the Russians have until Monday to stand down “or face the consequences.” Saturday, the U.S. put forth a UN resolution of condemnation that Russia vetoed and China abstained from. This only scratches the surface of the potential military situation; I could write at least 3 pieces on Russia/Ukraine and still have more to go.
Next we found out a couple of Federal Reserve “tidbits.” First, their balance sheet has finally topped $4 trillion and their equity sits at $55 billion. They are as far as I can tell the most leveraged central bank (hedge fund) on the planet. Were their portfolio to drop just 1.3% they would lose all equity capital. I would suggest that since they do not “mark to market” much of their portfolio in order to prevent the “stench” of losses to become public, they already have lost their equity capital several times over.
In other news related to the Federal Reserve and also to Russia I believe, the Fed’s foreign custodial holdings of Treasury bonds dropped by $104 billion in one week. Yes, read that again…1 WEEK! The speculation is that it is either the Chinese selling or Russia repatriating their $139 billion of treasuries so as not to have them frozen or confiscated. It certainly could be either one which doesn’t really matter because when all is said and done they will BOTH bail on their Treasury holdings. The interesting thing to me is that interest rates did not even budge higher (they actually dropped) which tells me the Fed was in there sopping up the sales. However, there is one little “footprint” that the Fed could not hide, the dollar was weak and closed near its lows for the week. This is the Achilles heel, the Fed can try to support the dollar but in the process they create more dollars which is fundamentally bearish anyway…the harder they “lift,” the heavier the dollar becomes.
Next we had huge and quite scary news out of China. Their shadow banking system created “zero” new credit last month compared to $160 billion the month before…the credit spigot is being shut off. Copper and Iron ore prices have collapsed which have been used as collateral to blow up (expand) the credit bubble…a shut off of credit will do just that…blow up their financial system. They also had their first bankruptcy of a levered trust with others to follow. The Yuan weakened versus an already weak dollar and they have now expanded their “allowable” trading band to expand to 2% from 1%. They obviously are expecting further and larger volatility.
I could go on and on about news that the Germans are becoming more boisterous about gold repatriation and even fighting amongst themselves, Libor lawsuits and investigations, EPA fraud, the collapse in consumer confidence (and these were just reported on Friday alone) but they only add to the “information overload.” My point is that there are flash points or “land mines” if you will at every single step now. There are too many “potentials” to even count them all. Most all of them have even been spoken and written about in the alternative media, even the mainstream media has at least touched upon many of them.
I bring this “information overload” to your attention because the theory is that one of them will be blamed as being the “Black Swan” event that tips the tower over. It is funny though because in order to qualify as being a Black Swan, the event has to be unexpected and almost “unknown” prior to being unveiled. In a funny sort of way, almost anything now qualifies as being a potential Black Swan because of the “training” we have been through for so many years, let me explain. Americans have come to believe that “the government will never let anything bad happen.” This is because whenever anything “bad” did start to happen in the past, it would be swept under the rug or “fixed” so to speak. Banks were not allowed to go under. The derivatives chain was held together by the huge injections of new cash. The stock market was “re” levitated. Housing was helped by interest rates being pushed to all time low levels. Anything and everything that needed to be done to keep the picture “pretty” has been done from falsifying statistics, rigging the markets and the “reality” being reported on by a favorable media.
What I am trying to say is that we have been lulled to sleep. Nothing matters anymore because “the government” won’t let it happen. Herein lies the problem. Even though we know of so many potential Black Swans, we know in the back of our minds that the government will “fix it” so…they can’t be “Black Swans” right? I guess what I am trying to say is that the “WHOLE THING” is a Black Swan because we have tolerated events and softened our tolerances so.
I graduated college in 1982. If today’s current real life picture could have been written and put into a textbook it would have been beyond “fiction” and deeply into the fantasy category. The system itself from a very broad and macro standpoint is the Black Swan. People just cannot see it because we are living it. “It” has become normal. I can just imagine how this will be seen when looked back upon…what in the world were they thinking?