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Wednesday, January 19, 2011

Black Swan Event Risks, 2011


What is a black swan event?

“The disproportionate role of high-impact, hard to predict, and rare events that are beyond the realm of normal expectations in history, science, finance and technology”

What black swan event could possibly interrupt 2011?

In no particular order,

In the U.S., the Federal Reserve (a private bank organization) has loaned to the U.S government (and other world entities) trillions of dollars in an attempt to keep the U.S. Dollar afloat. The U.S. is essentially bankrupt, and its only hope is to devalue the existing currency (the dollar), or in another word, inflation.
You can bet your bottom dollar that the U.S. government prefers inflation (they hope for ‘controlled’ inflation) for any chance to ease the real cost of today’s federal debt and deficit. This will surely be our future reality.
Food Price Shock
The United Nation’s Food and Agricultural Organization is warning of ‘food price shock’. Rising food prices have provoked riots in Algeria and elsewhere, while massive world food crops have recently failed due to extreme weather events in Russia, India, Pakistan, Australia, Brazil, and beyond.
Food prices will also be affected by currency inflation and rising energy costs. The trifecta, weather – inflation – energy costs, may very well bring on Food Price Shock in 2011.
Oil Price Shock
Faith Birol of the International Energy Agency is warning “The stability of the global economy is under threat due to oil prices entering a “dangerous zone”.
Common sense tells us that as oil prices rise, so do the costs of nearly every other thing in our modern lives. The ripple effects are more severe than most people realize.
La Nina
La Nina, the cooling of the equatorial Pacific ocean surface waters, is the strongest it has been in quite some time, and will surely affect the weather well into 2011 (generally colder than normal with localized effects out of the normal – affecting food crops and way-of-life)
Home prices 
Although the Fed is doing everything it can to prop up banks by purchasing their ‘bad’ assets (by the way – it’s you and I that are purchasing these bad assets – not them – every Fed loaned dollar to the U.S. has interest attached), the risk is very real that home prices could continue to fall despite the trillions of dollars pumped in. Foreclosures during 2011 are estimated to hit 1.2 million, topping last year’s record high.
Europe’s debt crisis 
Europe’s sovereign debt crisis could spin out of control as Spain gets in trouble. The U.S. is only a few cards away from a falling house of cards of Portugal, Italy, Greece, Spain, etc…
A systemic economic collapse in today’s modern hyper-fast world is a very real and present danger to our modern way of life
The Middle East 
Existing tensions could explode into disaster. Israel, Iran, and nearly all middle east countries are intertwined in tensions of war while the super-power puppet masters near the end of this chess game.
N. Korea
Kim Jong il, although seemingly under the control of puppet-master China, is capable of selling their nuclear weaponry to others, and could potentially start a chain reaction WWIII if launching any of their own nukes, as they have threatened to do upon S. Korea.
California is in a massive deficit crunch, more than any other state in the U.S.
California is the eighth largest economy of the world, and could be in a heap of trouble in the bond market. A Fed bailout could start a chain reaction of many other U.S. states that are teetering on the edge of bankruptcy.
Geophysical event
A volcanic eruption on the scale of Mount Saint Helens or greater, could shut down air traffic long enough to cause great economic worldwide damage (there are serious risks of this happening at this moment), or worse, cause devastating global cooling.
Although the current solar cycle maximum is not due until 2012 – 2013, a ‘Carrington event’ could cease the modern way of life as we know it, and potentially destroy civilization as we know it today.

How can we protect ourselves from these black swan event risks?
Minimize your risks on Wall Street (get out?)
Buy commodities that hold value through inflation (physical Gold, Silver, …)
Keep some cash on hand to get you through a short-term disaster
Buy food supplies now (beat inflation, risk insurance against disaster)
Become more self-reliant (reduce your debt to ‘the system’)
Plant a small garden (or as big as you dare)
Own physical assets without debt (land, assets of practical value)

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