Economic Black Swans? The White Swans Are The Ones We Need To Worry About

by Simon Popple of Brookville Capital

Everyone knows what’s going on.

Many choose to do nothing. Bury their heads in the sand. A few are prepared to shout out loud. Remind everyone what’s happening.

Unfortunately, a lot of very sensible and well-intentioned folk have been discredited – because they’ve got it wrong. Not the outcome (we don’t know that yet!). But the timing.

It’s all about the timing.

If you take a look at the graph below, it’s no secret why the US debt is spiralling out of control. In fairness to them, the same can be said for global debt. We’re all in the same boat.

Let’s break this down into three – What, Why, When

We know the debt is getting out of control and when this happens, safe haven assets, such as gold, should do very well.

We know what is happening.

We also know why it’s happening. Debt is being used to fuel the economy. Nothing new here.

But it’s the when that’s causing a lot of problems.

For at least a decade we’ve seen this coming, but nobody seems to have called the when correctly. We’ve all been waiting for that “Black Swan” event to tip us over the edge.

It hasn’t happened.

When we started, it probably was a Black Swan that we were looking for, but now it’s a White one.

Let me explain.

I recently listened to an interview with Jeffrey Gundlach which resonated with me.

Here is a link to it: ‘Bond King’ Jeffrey Gundlach says the national debt is ‘totally out of control’

According to Jeffrey – who’s the CEO of a firm managing US$138m – so we should probably listen to him. A recession could trigger turmoil in the debt markets.

This got me thinking.

If there’s turmoil in the debt markets, there’s problems everywhere. Join the dots.

As you know, recessions are fairly regular events. Typically, they happen about every 8 or 9 years. The last one ended in 2009, so I don’t think it’s unreasonable to assume that the next one may not be too far away.

There’s a tried and tested formula for dealing with these “downturns” – lower interest rates to boost spending and promote growth – problem sorted.

But with interest rates already at rock bottom and debt levels eye-wateringly high, the powers that be would appear to have an empty tool box.

Perhaps one reason why we haven’t had a recession.

Yet.

Because it will happen.

The million-dollar question is when?

Firstly, it probably won’t be very long and secondly, a recession is a white swan. They happen like clockwork – almost.

That’s what you need to look out for.

Sure, a “Black Swan” event could kick it all off. But if you spend all your time looking for one of those, you may miss the innocuous looking white one that glides by. And you don’t want to do that.

Please take a look at www.brookvillecapital.com to find out more.

329 views