Black Swans?

You never know what will trigger an bull market and what will trigger a bear market .   – Marc Faber on CNBC

Faber goes on to say in his comment on CNBC that you can only know what triggered a bull/bear market after the fact.  That is the definition of a “black swan.”   There hasbeen a lot of speculation in the last year about what the black swan would be that would trigger the next market collapse.  Of course, once a candidate for the Cigno Nero is identified, that takes it out of contention, right?

The collapse of Banco Espirito Santo, Portugal’s 2nd largest bank, could well prove out to be that black swan, as it is an event that no one saw coming (except maybe the bank’s auditors).  Too be sure, I read a lot of everything and I have not seen any Oracle of Blogosphere previously mention this situation:  Espirito Santo Creditors Doubt Containment on Missed Payment (Bloomberg News).

But this is the reason the U.S. stock market is tanking hard today AND why gold, silver and mining shares are spiking higher.

The Bloomberg story above references the fact that there are credit default swaps – aka OTC derivatives – on Banco Espirito Santo.  But what’s missing from the analysis is, “what happens if one of the counterparties who has made the bet that this bank will never go bankrupt can not pay off the bet it has made?”

What happens?  A defaulted bank will now be bailed out creditors –  depositors and debt holders, in that order.  But what about the entities that have to make the payments associated with the credit default swaps?

We don’t know who the counterparties are and we don’t know who will be on the hook – until after the fact, which by then it’s too late.   We don’t know this because the Too Big To Fail Banks made sure they paid your elected Congressmen to pass laws that enabled the TBTF’s to keep this information hidden away.  I bet even Jamie Dimon, pre-chemo, has no clue whatsoever if JP Morgan is on the hook or if JP Morgan is exposed to someone who is on the hook.

THIS is what could potentially trigger a bigger run on the bond market and THIS is exactly the dynamic of which regulators in the U.S. are terrified.   And THIS dynamic is why the Fed was discussing putting capital controls on bond mutual funds.  And THIS is why the Vice Chairman of Black Rock, Barbara Novick, is going around like the Sicilian Mob Boss promoting the concept of the need to have a bailout mechanism for the derivatives clearing mechanism.  Clearly Black Rock is highly exposed to credit default swaps.

It’s coming.  It’s just a matter of time.  You have been warned:  Get money OUT of bond mutual funds.   Get your money out of your IRA and 401k plans TO THE EXTENT YOU CAN. Pay the penalty and taxes.  Do you want to pay 30% of something or get 0% of zero, because there will come a time when your retirement fund is reset to zero.

On another note, three of the four junior miners I have published research on are up well over 10% in the short time since I’ve published my reports:  Junior Mining Stock Research Reports.   “Huge Upside Idea” is up 22% since June 25th.   It’s just getting started.  Almaden (AAU), spiked higher yesterday on great drilling results and is pulling back today for no reason.  This is an entry opportunity, in my opinion.  The other two ideas have plenty of room to run and good reasons why they should run.



9 thoughts on “Black Swans?

  1. Dave, On days like today, with AAU down 8% for no reason, do you ever feel like the TPTB are actually fucking with you, personally? I have felt that way at times… after putting certain ideas in print.

    1. LOL. Thought used to cross my mind. I doubt the PPT knows who I am. I’m not that important.

      AAU jumped up on short-covering and it’s a highly shorted stock. All the juniors are manipulated.
      I think yesterday’s move was partially algo-driven short covering on the drilling results news.
      Today they’re seeing it was game-changer news and are re-shorting.
      Buy this pullback.
      AAU is worth at least $3-$5 per the reasons in my report.
      There’s reasons it’s worth several multiples of that…

  2. I will have to counter you here… they do know who you are, and you are that important. Not saying that you caused the AAU dump, but for sure you are on the radar as a source vector for viral truthiness. I know this because Steve over at SRS Rocco report outed some trolls in the comments thread a few months ago – some very well spoken and seemingly well educated folks were expressing what amounted to anti-PM speak regarding cost of mining .. suggesting more downside for Silver. Steve realized, I assume based on IP address info., that what appeared to be multiple folks commenting were really one entity. The purpose was clear; create doubt in the minds of those folks reading the blog that there wasn’t more downside for Silver, even sub-$20. Here is the article Steve wrote…

    Read that, and my point about AAU will not seem so far-fetched. Your friend, 1 Kg Lunar Dragon, aka Jim H

    1. Ya, unfortunately you’re probably right but there’s nothing I can do about it so I prefer just to ignore it.

      This country is ultimately screwed for the reasons Ayn Rand and George Orwell prophesied 70 years ago…

  3. just sharing…hope you dont mind Dave.

    “While here, what is the data and chart telling us? From June 3 to July 1 silver advanced $2.22 or 11.8% (from $18.79 to $21.01). For that same period the combined commercial traders – as reported in the Legacy COT report — added a pretty darn large 42,315 contracts to their collective net short positioning (from 9,640 June 3 to 51,955 contracts net short July 1 – the equivalent of about 211.6 million ounces of silver bullion apparently sold into and presumably attempting to put the brakes on the silver rally).

    Now hear this!: As silver rose $2.22 the ounce from June 3 to July 1, the traders the CFTC classes as Swap Dealers reported going from 10,691 contracts NET LONG to a stunning 22,155 contracts NET SHORT – a giant and unprecedented swing of a whopping 32,846 contracts to the short side. Catch that?”

  4. Good stuff Dave. I’ve given a lot of thought to the concept of IRA/401K confiscation, and how that would work and what the ramifications would be. And obviously, the same banks that are TBTF, and who are at the center of the power system in this country, would suffer from losing access to 401K/IRA investment funds – every dollar confiscated is another dollar they can’t entice you to invest in some social media company and which concurrently pads their trading profits. So here’s my question – are you believing the system will tank so badly that the desperation to remain solvent will supercede any interest in preserving the investment landscape status quo? That any interest they may have in making sure our IRAs stay right where they are, fully funded, is superceded by their need to not follow Lehman into the abyss? I’m just trying to get my head around the fact that any confiscation hurts those very same financial institutions that the Fed has spent the last 6 years trying to protect.

  5. Banco Espirito Santo could be the start of the bond market crash. I also think possible bond defaults in Argentina could cause disruption with banks in Portugal, South America, and Spain. We could also see something similar if Puerto Rico defaults on their bonds. Spanish and U.S. banks are heavily invested in Puerto Rico. There are also a lot of mutual funds that carry Puerto Rican bonds. Puerto Rico and Argentina are just two more entities that could ignite bond market.

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