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Author Topic: The Swans are Landing - Japanese Quakes & Crashes, Saudi Soldiers, and Gold  (Read 1667 times)
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tamo42
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« on: 2011 Mar 15, 06:58:36 am »



Ever since the concept of black swans, random unexpected events that dramatically change the economic picture, was introduced the expression has been overused. Before Taleb coined black swans people used to say $@%U# happens.

Despite the triteness, I feel the need to say that the black swans have really come home to roost. Over the past few days we've seen a number of important developments in the world. I'm going to focus on two of them.

First, there was the earthquake in Japan. There has been quite a lot of destruction in Japan and many have lost their lives. The death toll has been much lower than it could otherwise have been because of Japan's long experience with earthquakes. Unfortunately they are also experienced with radiation from nuclear reactions. For those who slept through history class, the US dropped two atomic bombs on Japan (the only time nuclear weapons have been used in combat) killing hundreds of thousands of people. The earthquake damaged several nuclear power reactors and there has been radiation leakage. To be frank, the radiation levels are not threatening. You get more radiation when you fly on a plane. But that hasn't stopped Japanese people from evacuating major cities and stocking up on emergency supplies. The Japanese stock market has tumbled by almost 20% in the 2 days it has traded since the quake.

dddave and I were discussing this in the chat last night, and he pointed out that Japanese homebuilders should be a good buy because we are pretty confident that the destroyed towns and infrastructure will be rebuilt. I think he is correct about this, especially since today the Bank of Japan announced that it will be buying ETFs and REITs on the Japanese stock market.

Meanwhile, stock markets around the world are down, but not as much as the Japanese markets.

The next swan in the flock (do swans travel in flocks?) is back in our favorite stomping ground: the Middle East.

The Day of Rage fizzled in Saudi Arabia, but protests continue in neighboring Bahrain. Saudi Arabia has sent tanks and troops in support of Bahrainian king to keep the protestors down. It seems that yesterday a Saudi soldier was shot and killed by a protestor. Soldiers killing protestors barely qualifies as news any more. Protestors killing soldiers does. If this leads to an escalation on the Saudi side, we could see an effect on the risk premium placed on Saudi oil. It's too soon to tell, but it's worth keeping an eye on.

All of this, combined with the very shaky picture in the American markets has led to a flight-to-safety into the US dollar. This is actually pretty critical for the dollar as it had broken a multi-year support line recently. This gives the Fed a bit of room to breathe without the penalty of destroying the dollar. So most likely they will take the opportunity to inflate some more.

It's interesting that this flight to safety is into the dollar rather than into gold. This is a change compared to what we've seen over the past couple months. Perhaps it is because the character of this disaster isn't monetary? Do people instinctively go back to their conditioning when faced with real, natural disasters? It will be interesting to see if this is true going forward, or if not, what do some panics lead to dollar buying and others lead to gold buying. The fact that this is a question at all (and it's not always just dollar buying) shows us that the world is changing.
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Neal McSpadden
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« Reply #1 on: 2011 Mar 15, 07:21:14 am »

Good article, tamo. How do you explain the Japanese Yen gaining in the past few days? China dumping dollar to diversify into Yen, maybe?
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tamo42
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« Reply #2 on: 2011 Mar 15, 07:37:47 am »

Honestly, I'm not 100% sure. My guess is that money leaving the Japanese stock market is going into the Yen. It'd be their own version of a flight to safety.
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« Reply #3 on: 2011 Mar 15, 07:47:05 am »

Could this be the catalyst for a precious metal "meltdown" in the short term? JPM shorted another  6000 silver contracts. This could be the perfect storyline for a 2008-style precious metal meltdown. To me, that will represent a great buying opportunity.
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CoinWorld13
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« Reply #4 on: 2011 Mar 15, 07:53:34 am »

r3globe, I would 100% agree with you I believe that is exactly what China is doing to give Yen a gain. However, I believe that you will see a change over the next couple days.

What an excellent article tamo42. I have also read up on Utah! These sure are unprecedented times!

As for Saudi Oil. We are seeing a tiny rise in the risk premium on the oil already aren't we? Or was that due to the "fly zone"
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CoinWorld13
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« Reply #5 on: 2011 Mar 15, 07:57:02 am »

r3globe,
How wonderful would that be with all excitement going away from gold and silver, and going into the dollar... I seen the shortages just now too! Thank God for PAPER SILVER!! HA! If there is a metal "meltdown" I hope it does not scare all of you! I would embrace it with open arms. The only question I would have is where to start buying. I only wonder if it will tighten the belt on the Chinese rare coin markets. Not that prices will drop much, but tighten the belt on inventory... That would be the only downfall I would see.
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r3globe
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« Reply #6 on: 2011 Mar 15, 09:11:10 am »

Coinworld, I am thinking along the same lines. I think a metal meltdown if it materializes will be sharp and quick. IT will scare the crap out of "new" money getting in Silver at $35 hoping for $70-$100. We will eventually see the $70-$100 in a couple of years maybe. But, before that, we might , just might, see a quick and painful pull back all the way down to $21-$23. IF it goes there, the physical supply will be tight and premiums very high (like late 2008). It will be once in a life opportunity  to load up on silver again.
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r3globe
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« Reply #7 on: 2011 Mar 15, 09:13:47 am »

oh, and as far as the Chinese coin market, a precious metals meltdown will dampen the enthusiasm for the market and will yield some opportunities (I hope). So the best would be to stay tight and look for opportunities there too. We know Uncle Ben and company will eventually fire up the printing presses again and inflate us out of any problems.
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CoinWorld13
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« Reply #8 on: 2011 Mar 15, 10:04:18 am »

Very well said r3globe!! Thinking about the Chinese market, I think you are right!  Silver is officially down 5 percent as of me writing this. It didn't take very long for the Fat Cats who make their paper money on paper silver to make a profit today! It just gives me butterflies to think that one day in the very near future, these same people whom make their living manipulating the market with paper metals will get their just desert! Also, how they laugh and think that this hurts us! Like you said r3globe, this gives us the perfect opportunity to buy up these very precious metals all the more!! Hopefully rare Chinese Coins and Medals too!
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badon
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« Reply #9 on: 2011 Mar 15, 10:31:38 am »

The rare coins probably won't drop as much, or at all. We'll have to wait to see, of course, but the supply is just too small for prices to drop much. You can short things like silver with nothing more than paper, and sometimes even less than that, but you can't do the same thing with rare coins.
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