3 potential near-term black swan events
The giant (and constantly growing) US bubble has been floating around (desperately) searching for a pin to pop it. There are many potential near-term to mid-term black swans that could easily pop it. However, I would recommend that people track the following 3 potential black swans the closest: 1) Shale oil and gas high yield (junk bond) debt - drop in oil price from $100 to $53. Major issues if the price stays down for an extended people of time. The shale producers were not hugely profitable at $100, never mind $53. Very expensive to produce. On avg, conventional oil is probably located about 1,000 ft down. With shale oil and gas, on avg, they probably have to go down 10,000 ft vertical then go horizontally another 10,000 ft to frack the rocks. They use huge amounts of fresh water (and huge machinery and equipment). They have to use 1 barrel of oil/energy to produce something like 1 - 2 barrel of shale oil. Never mind all the damage to the environment. Also, the shale wells deplete really fast relative to conventional wells. Shale oil company debt makes up about 20% of the junk bond mkt. Many of these shale oil companies need to see at least $80 oil, otherwise grand scale defaults will begin eventually. The big US banks own the debts. There has already been major capital expenditure cutbacks by these producers. Essentially the only success story the US gov`t had over the past 6 years occurred in shale (aside from maybe a bit in tech) - employed a lot of people with well paying jobs. That is about to come apart. For every shale job created, one extra job was created in shale support businesses. That is all at risk of evaporating now. Oil rig counts have fallen over the past 3 weeks, from about 1840 to 1200. Texas is showing early signs that it might go into a recession due to the fall in oil price and the impact on shale. 2) Oil derivatives - derivatives around the world is estimated to total somewhere between $800 trillion to $1.4 quadrillion. Many of these derivatives are held by the 5 or 6 ``too big to fail`` US banks and some big Euro banks. Derivatives are essentially bets on various markets. The banks make huge profits (partly by manipulating markets and colluding with governments), that is until the derivatives crash (and also bring down the system). Banks are involved in every market. The interest rate mkt is probably the biggest, but oil and gas is big also. As an example, JP Morgan is estimate to hold $60 - 72 trillion in derivatives, but I believe JPM only has about $2 trillion of liquidable assets (if they sold everything). As one can see, even a 5% loss in derivatives bets can wipe out the largest US banks - with the contagion bringing down all US banks. All big US banks hold huge amounts of derivatives. With specifically in regards to oil, the US banks hold trillions of dollars of oil derivatives. These are basically hedges with oil and gas producers. One party or the other will have to take losses for the drop in oil from $100 to $53. Some of the oil companies hedged some of their oil production for 2015 and 2016, but not all producers. The hedging producers likely hedged 50 - 75% of the production so they are still exposed to the low prices. Some producers likely didn`t hedge any at all, thus are completely exposed. As mentioned, some party has to take the losses, if not the producers then the banks. The hedged prices are all likely above $85 or $90 per barrel. As such, for example, with a $50 oil price the banks are looking at a $40 per barrel loss with a $90 hedged price, for 2015 and 2016, as long as the oil price remains low. We are looking at potential for major financial losses, which could blow the oil derivatives and bring down the banks - never mind the massive contagion in the general global economy. 3) Greece debt default - the current gov`t was required to gain more seats in the Greek parliament. They had 3 chances to do so in December, but failed all 3 times. Now they have to go to full election by the general population - planned for January 25th. The early polls are showing that the key rival party is leading (as has been expected for a while). The rival party is expected to win, unless the expected heavy media/banking sector propaganda gets to the people by election time - heavy fearmongering campaign is expected. The rival party promises major changes, if elected. They want to raise minimal wage by 50%. Side note, unemployment rate is 25% (50% for youth). They want to eliminate the very crippling austerity measures (that the IMF - US puppet - insist on them taking before the next bailout loan). Greece may not get the next IMF loan if they eliminate austerity measures (a key prerequisite). Greece owes around 250 billion Euros of debt. Without the bailout, Greece will likely have to default on this debt (unless they get bailout from elsewhere). A default could mean Greece leaving the euro currency eventually (though, likely still staying part of the Euro group) and going back to using the Greek drachma currency. The rival group recognizes that Greece does not generate the productivity levels to get out of their debt situation, and there is definitely no hope with increasing IMF debt. The reason this is especially important globally is due to who owns the PIIGS (Portugal, Italy, Ireland, Greece and Spain) debt. The PIIGS debts are largely owned by French banks. The French banks are largely owned by Germans banks. The big US and British (plus other) banks are likely very connected to both the French and German banks. Enough to put major pressure on the big banks, with contagion to the general economy.