Black Swans and Brown Snakes
I am in Sydney as I write, waiting to go to a gold show being held in a few days. [Editor's note: And the 321gold readers who live in or near Sydney, might want to note that Stewart Thomson - a 321gold favourite - is also at that show].
This trip to Australia is part of a visit to Novo Resources in Nullagine but more on them in a few days.
When we were at the Beaton’s Creek gold project of Novo, Quinton Hennigh casually mentioned that there was a family of black swans living in a nearby reservoir. I asked if it was possible to go and see them because I would love to have pictures of black swans. So we did.
The picture isn’t the very best. It was taken from about 150 meters away from the black swan parents and four cygnets. Swans mate for life and the father participates in building nests for the pregnant female. I will say, in my opinion, the birds were beautiful.
Black Swans were of course, the subject of a famous book by Nassim Taleb where he uses the birds as an analogy for improbable and unforeseen events that cause massive consequences.
In another casual comment dropped during lunch before the visit, Quinton also mentioned there were snakes in the area and for certain you wanted to avoid them. I recently viewed an article about deadly critters in Australia not knowing I would meet with one soon.
Our group was seated at a table eating when someone saw a snake slithering across the road. Naturally we all got up at once to go see if was one of the deadly types or not. Five or six of us stood around the snake arguing about it having a dark head and being really really deadly or just a garden-variety python. Remember, this is in a country where spiders can kill you and it has more deadly snakes than friendly-to-hold snakes.
Because of how the snake was crossing the road and where the light was coming from, it was hard to determine if the snake had a dark head (BAD) or not. So we got closer and closer to the snake. (and possibly to our maker) Eventually we figured that, yes, it had a dark head and no, we didn’t want to get any closer. The snake was kind enough to let us inspect it before crossing the road and going off to find lunch.
So my question to the reader is: Which is more dangerous, the Black Swan or the Brown Snake?
I am going to tell you that the Black Swan is a whole lot more dangerous. We know the Brown Snake is dangerous and we can avoid it. The Black Swan catches us by surprise. We get two steps with a bite from the Brown Snake because it’s a two-stepper but we don’t get any steps after a Black Swan lands on our head. We just keel over dead.
A flock or a herd or a gaggle or a school of Black Swans is flitting around us and no one takes any regard of them. Any of them can kill our society.
Let me count the ways:-
1. A fool named Thomas Duncan from Liberia took a neighbor who had contracted Ebola to the local hospital in Monrovia where she was refused entry because they were full. He feared exposure to the disease so he did the most logical thing he could think of, he hopped on a plane to Dallas where he knew that under Obamacare he would be getting free medical attention.
He comes down with symptoms of the disease once he gets to Dallas so he goes to the hospital. They give him antibiotics and send him home even though he told them he had been in Liberia. He gets sicker and a nephew has to call the CDC to say, “Oh, by the way, he has Ebola” before anyone will do anything. Meanwhile he has potentially contaminated between 80-100 people.
Someone calls for an ambulance and takes him to the hospital while he is most contagious. No one thinks that maybe the ambulance might be contaminated and it isn’t cleaned for two days. Before he got into the ambulance he was vomiting on the sidewalk. Those sent to clean it up have no protective suits and aren’t told he had Ebola.
Thomas Duncan is now in critical condition. If no one else in Dallas comes down with Ebola as a result of his travels, perhaps we are safe for now. If the disease spreads further, a Black Swan event just took place. In a month or two, the US could go into a total lockdown mode.
Meanwhile, since we haven’t limited travel from the Ebola affected areas in Western Africa anyone who thinks they might want some free medical care can hop on a flight to the US and enroll in more of that free Obamacare. And if there are any pissed off Muslims in the world, they can do a modified Hajj to West Africa, rub up against the nearest Ebola infected patient and bring their blessings to America. Once safely there they get free medical care if they happen to come down with the disease. And 72 virgins wait to greet them if they kick the bucket.
How many people need to come down with Ebola in the US before we close the borders and impose Martial Law? The US government didn’t buy 2.6 billion hollow-nose bullets to use in trap shooting.
When independent evidence from neutral observers reports that MH 17 appears to have been shot down from cannon fire from a Ukrainian fighter, all of a sudden the media goes all quiet about the event. But the constant demonization of Putin by the US continues.
4. The Dollar Index appears to have gone parabolic. I have gone over the importance of that before on April 25, 2011 as silver went parabolic. It was, of course, a major top in silver only seen in advance by a couple of people most notably the brilliant Adam Hamilton. It was a true black swan event.
The Dollar Index has gone up 12 weeks in a row. Nothing goes straight up or straight down. But we forget that the dollar index doesn’t really measure the dollar. It is made up of the Yen, and the Euro and the British Pound and some other currencies.
What is really happening has nothing to do with the dollar and everything to do with the Yen and the Euro. They are crashing. Nothing at all has happened to make the dollar whole or even safe from a fundamental point of view. It is just a case of a race to the bottom. For now the Yen and Euro are crashing faster than the dollar. That’s not a sign of health for the dollar, as is so popular to believe, it’s a sign of massive danger.
The Yen and Euro have dropped about 10% in the past three months. The dollar index has gone up about 10% including an incredible 1.33% move higher on Friday. The Forex markets are huge, measuring $5.3 trillion per day. A 1.33% move in the dollar index in a day just caused $69 billion in losses to someone. That’s giant.
Parabolic moves end with capitulation. That just happened on Friday. The dollar isn’t the safest place to be, it’s the most dangerous.
When an earthquake strikes and a tsunami forms, the water doesn’t come in at first. It goes out. The further out it goes, the bigger the tsunami on the way.
The self-proclaimed experts chortling about how wonderful it is that the dollar index is going up and gold/silver are crashing are ignoring what is really happening. The Euro and Yen are crashing and money is flowing to the US because of perfectly rational investors moving their assets from overseas out of their currency into the US dollar and the S&P. But short-term moves from dangerous economies into the US are like the water going out because of an approaching tsunami. But when those same investors realized all they have done is jump from the fat into the fire, the real tsunami will hit. When the S&P and dollar crash, the real tsunami hits.
5. If parabolic moves always end badly, what about the reverse? I have reversed and inverted a six-month chart of silver. As far as I can see, that chart may as well be identical to the six-month chart of the dollar. It’s nothing more than a parabolic chart indicating a massive and important top. But in this case, a bottom.
So when you think about the price of silver or gold and look at a chart of the last six months action, you really aren’t seeing the fundamentals of those commodities. As I explained before, the actions of the dollar index have nothing to do with the safety of the US economy and everything to do with the dangers of the Euro Zone and Japanese economy. We aren’t in a zone of safely; we are in a zone of approaching danger.
The dollar isn’t going up and silver/gold aren’t going down, it’s all about the Euro and the Yen, when those people on the beach watching the water go out realize what has really happened it will be far too late to run to safety.
6. I will put in one more Black Cygnet that has been highly profitable in the past for those few resource investors smart enough to take a profit when they have one.
In June of 2013, again in December of 2013, and again in late May of 2014, the ratio of the XAU over Gold touched new record levels of pessimism. As I have said in the past, markets don’t trade on fundamentals and you can’t predict the actions of markets using squiggles on a chart. If you could, we would all be rich.
The fundamentals of owning gold and silver are the same today as they were in April of 2011 when silver hit $50 and in September of 2011 when gold hit $1922. If anything, the world economy is far worse and we are closer to WW III or a mass epidemic worldwide. But in April of 2011 everyone loved silver and in September of 2011 everyone loved gold. That’s what makes tops. And when they hate the commodity, that’s what makes a bottom.
The XAU over Gold was lower on Friday last than in June of 2013 and June of 2014. Both those occasions were wonderful opportunities if you have the courage to ignore the bleating of the sheep. It may touch the low of December of 2013 today. In the past three events, the chart was a signal of opportunity, not risk.
Nassim Taleb’s book and theory of Black Swans holds that Black Swans cannot be predicted, that’s what makes them Black Swans, they are unexpected. I’ll more or less agree with that but you can damn sure hear them honking when enough of them are flying overhead.
When the turn comes in the Dollar Index and the S&P and gold and silver, it will be sudden, a surprise to most, and violent. I’ll put in two last pictures -- of what I was buying at the Perth Mint on Friday.