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Wednesday, December 18, 2024

Final 48 Hours of 2015 – Black Swan Preview

INDU WEEKLYRick Santelli summed up the stock market action very nicely:

"I don't know how they do it? Plunge Protection Team? Abenomics? Japanese buying futures? No matter what The Dow will not be allowed to end the year in the red…"

How they do it is a process called "Ramp and Camp", where the US indexes are pushed higher in very low-volume trading in the Futures (and Jim Cramer explains how easy it is to fool the retail suckers here), which is the "ramp" and they the TradeBots are set on auto-pilot and do just enough to hold the indexes at the desired levels, also taking advantage of any retail interest they generate to sell to the suckers as they come in to hold the bags.  

SPY  5  MINUTE

Notice most of the volume for the day comes right at the open and then again in the selling into the close.  The most surprising thing about manipulating the markets is how cheaply it can be done!  Speaking of manipulated markets: Remember 6 months ago when China halted the sale of half of stocks on the Shanghai Stock Exchange?  Major shareholders were banned from selling  $185Bn worth of stocks, which will finally hit the market on Jan 8th – I'd circle that day on your calendar!  

China is. by far, the blackest of all possible swans in 2016 – it's a story we predicted would kill the markets this year and it's still early innings on our China watch.  Another interesting black swan issue brought up by MarketWatch is the possibility of a Sovereign Wealth Fund cashing in its assets.  After all, the whole point of SWFs is to put money aside for a rainy day and how much of the $4.3Tn controlled by SWF's is from oil countries that are weathering the worst Financial Storm in their history?

MarketWatch agrees with my note from yesterday, that one of the biggest potential black swans of 2016 could be the death of the unicorns. Rounding out their unexpected potential catastrophes of 2016 could be a delay in shipping the IPhone 7 and I think it's already a catastrophe that a single company now has the power to trash the entire $100Tn Global Market, but it's true and it's an issue we have to deal with.  

MarketWatch is also worried that Mario Draghi may resign (and not be replaced by another Goldman Sachs drone) and the next guy may not be willing to print unlimited Euros because – you know – the future…   Finally, Peace in Syria would be the straw that breaks oil's back so root for Assad and Isis to hold the line if you want to make bullish bets on oil this year!  Of course, if you do that you'll get coal in your stocking and, believe me – NO ONE WANTS THAT.

CNBC brings up a much blacker swan that may already be looming on the horizon.  Saudi Arabia just announced a $97Bn budget deficit, which is 15% of their entire economy (it would be like the US running a $3Tn deficit) and that, then forces us to question whether the Saudis can maintain their Dollar peg.  When Billions of Dollars are coming in to pay for the 10Mbd they produce – pegging the Dollar is a simple thing but now they only collect $350M/day for 10M barrels and they don't have cash to throw at the problem.

The projected $98Bn deficit assumes oil will average $45 in 2016 – if it, in fact, averages $35, that's $100M less per day for 365 days is another $36.5Bn into the hole (5% more of their GDP).  Every day you see oil below $45 – the pressure is mounting quickly on the Saudi economy.  

The entire energy sector can become a black swan in 2016 as massive debt loads begin to turn sour and spill over into the Financial sector as loans have to be written off.  It's estimated tha the energy sector is on the hook for $2.5Tn in debt – actually worse than the sub-prime crisis and, in this case, any single default can have huge repercussions.  

It's hard to call Russia a black swan as they've been dying for years and oil prices are killing them as well (think how many people MUST keep pumping oil to survive) but at least there's a booming black market for nuclear weapons they can fall back on, right?  Brazil is in the same sinking boat as Russia and the spotlight will be on them this summer – making the economic issues hard for the press to ignore.  

I was going to include the break-up of the European Union on our list of potential Black Swans but I decided not to as it's been inevitable for years and is pretty much just a slow-motion train wreck in progress.  IMHO.

Germany is down 1%, leading Europe to give up half of yesterday's gains (thanks IMF) as they head into lunch – we'll see how well our own indexes hold up under pressure.  

Be careful out there!  

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