2012: The Year of the Black Swan
Today, we’re doing something we’ve never done before and probably won’t do again anytime soon. We’re reprinting the monthly newsletter (sign up here if you don’t receive it) on the same day it’s going out to subscribers. We usually don’t post them to the blog at all, or if we do post them it’s with a delay. However, we’re starting a new series with this letter and thus need to explain it here on the blog as you’ll see below…
Your February 2012 Kingdom Calling Newsletter
2012: The Year of the Black Swan
Wikipedia defines the term coined by Nassim Taleb this way… “The black swan theory or theory of black swan events is a metaphor that encapsulates the concept that The event is a surprise (to the observer) and has a major impact. After the fact, the event is rationalized by hindsight.”
2012 appears to have some good investment opportunities. Sure, a lot of people are negative on the economic outlook, but that’s always the case at the bottom of a cycle, right before/as the stock market booms. Several of the people whom I admire for their abilities to speculate when to be in the market and when to be out of it, see great opportunity now to be in the stock market.
Lower than average stock prices mixed with Central Bank money printing as far as the eye can see should lead to big moves up in the market, right?
The sense that I have is that no matter how much that might seem to make sense, it’s just not going to work. This is the year of the Black Swan…
I believe at least one and probably more than one event will occur this year that will shake this shaky economy to the core. I believe that will lead to incredibly volatile markets. And a year that we won’t forget.
This is not to say there are not sectors to be in that will not do incredibly well this year. There are multiple areas that I believe will be anywhere from solid, to good, to great, to incredible. But you must have a careful strategy in place to whether all seasons.
Making predictions for what will happen between now and some certain point of time in the future is a silly endeavor no matter how entertaining it might be. It gives me the chance to flex my muscles at my correct prognostications and wince at the incorrect guesses, but it doesn’t really have much correlation to successful investing.
A case in point. I told you last month that I was only partially correct in saying that gold and silver would have strong years in 2011 because although gold ended up 10%, silver ended down 9%. Well, silver’s up about 20% in just the first month of 2012. So was I wrong? Or did I just have bad luck on the turn of the calendar?
Again, it doesn’t really matter, but it does bring to mind that if I’m guessing anyways, I would prefer to make some bolder predictions that are much less likely to happen. However remote the odds, these are predictions which I do consider more than just possible, and if correct would truly turn the economy upside down (not to mention all the affects it would surely have in the much more important areas of each one of our lives.)
So, I’m going to do that. And I’ll go ahead and make some predictions for exactly what the markets will do by precisely the end of 2012. But doing all this will take more words than I want to throw at you in one newsletter.
So I’m going to make use of the blog over the next month or more to make some predictions in bullet point fashion (tomorrow) and then to begin expounding on each of these ideas over every other day or so to give you a more full understanding of what I’m thinking.
You see, I don’t know exactly how things are going to go (stating the obvious here I know). There are some very distinctly opposing possibilities that I see. I have the advantage over many in knowing much of the general outcome of things. And I do have some strong opinions based on strong reasoning of overall direction. However, I don’t know specifically how we’re going to get there. And to best steward our resources, these are very important questions to consider. Gone are the days where you could be an old fashioned investor who simply buys solid stocks and bonds, hold plenty of cash, and do just fine.
This could be a very dangerous way to go because the reality is that the government & Fed have manipulated money and markets to the point that to survive you must be more than an old fashioned investor, but also a prudent speculator. Not to try and hit a home run with amazingly lucky stock picks, but to protect what you have from the wrath of markets rebounding from unnatural influence. If I’m correct in what I believe is most likely to happen, then you absolutely must allocate your capital outside of the traditionally “safe” areas of cash, fixed, bond, or equity indexed products. Those have always been considered safe even though the interest earned on them now is small. But if those holdings are not counter weighted by assets which behave differently in certain conditions, it’s conceivable that you could lose a substantial portion of your assets rather quickly.
Again, the ideas we’ll be discussing in these posts are not meant to help you place all your chips on a hand of poker and hope you pull the right cards. But are instead meant to show you potential outcomes to consider assuring that you have a winning card or two in every hand no matter which way things go.
You can’t escape risk today. Ben Bernanke and the Fed are making sure of this. They have stated quite clearly that they will increase risk in the market (by increasing inflation) so that the citizens of the USA (and thus most of the world) will have to take risks they are uncomfortable with to try and keep up). They’re creating negative real interest rates on purpose to force you to do things that you don’t otherwise want to do. This is the grand plan to save our economy. If this sounds incredibly reckless to you, you’re right, but you’re not in charge. And they’re desperate. You simply get to decide how to react.
Thus, in many of my predictions, I don’t have a strong conviction of what will happen over the next year. Sometimes, I feel much more certain that something will happen, but putting a specific date on a particular result is crazy. So although I’ll make predictions, they’ll be nuanced to show how outcomes could be different.
And I want to throw out some Black Swans that I think are very distinct possibilities over the next couple of years. These are the things which you must really be alert to because they will have a much bigger impact on your life than whether or not the stock market goes up or down next year.
We’ll start posting these blog posts tomorrow. If you would like these messages emailed to you or sent by RSS, you can sign up here if you don’t already receive the blog posts. (FYI… It seems like Feedburner’s email service & some RSS feed readers get to you 24 hours after they’re posted to the blog.) Or you can show up several times a week to the blog here and read them on the site.
Why is this the time of the Black Swan?
This year will see an increase in the economic difficulties, but this is not bad news! We are blessed to be able to live in this time! Whether or not we are able to steward our financial assets wisely by avoiding the many traps and taking advantage of the warped markets… This is the time the Lord has made.
I’ve often quoted these verses over the last few years…
“See to it that you do not refuse him who speaks. If they did not escape when they refused him who warned them on earth, how much less will we, if we turn away from him who warns us from heaven? At that time his voice shook the earth, but now he has promised, “Once more I will shake not only the earth but also the heavens.”The words “once more” indicate the removing of what can be shaken—that is, created things—so that what cannot be shaken may remain.
Therefore, since we are receiving a kingdom that cannot be shaken, let us be thankful, and so worship God acceptably with reverence and awe, for our “God is a consuming fire.” (Hebrews 12:25-29)
This is such a powerful truth for our day and should bring great comfort. That indeed the Lord is shaking away those things from our life that we have grown accustomed to even though they might be holding us back from all that He has for us in His Abundant Life.
Yes, the earth and the heavens, the economy & the things of our very lives will be shaken. But if we receive all this as the discipline of the Lord, He can bring us closer to Him than we’ve ever been! And isn’t that worth everything?
Here’s a similar verse from Acts 2:25 which I came across this morning from Peter’s big Pentecost morning speech…
“For David says of Him, ‘I SAW THE LORD ALWAYS IN MY PRESENCE; FOR HE IS AT MY RIGHT HAND, SO THAT I WILL NOT BE SHAKEN.”
The Lord is our Rock. He cannot be shaken. What a beautiful time to press into Him!