Could This be the Next Economic ‘Fat Tail’ Event?

Yesterday morning, I was walking along the sandy beach of Mission Bay, enjoying the sunny view of Rangitoto…when I came across something that WAS NOT supposed to be there.

A massive elephant seal.

The blubbery blob had decided to beach itself in the popular spot for a quick nap…at least 12 hours by my count.

Here’s a pic I snapped:

Source: Taylor Kee

Apparently, running into one of these gals is a very rare experience in the Auckland area…a DOC guy on the scene told me.

In fact, he couldn’t remember ever seeing one this far north.

But like one of Taleb’s ‘black swans’ or Didier Sornette’s ‘dragon kings’, this female elephant seal appeared nonetheless.

It’s what Bill Bonner calls a ‘fat tail’…a rare anomaly that defies normal probabilities.

 

Fat-tail events

This one was fun and cute…but some of these outliers can be quite dangerous.

  • Black Tuesday in 1928.
  • The attack on 9/11.
  • Both World Wars.

This type of event can set societies back by decades…in terms of human life or economics…
but it also has the capacity to ‘give life’ too.

  • The internet.
  • The dissolution of the Soviet Union.
  • The personal computer.

Here at Money Morning New Zealand, we watch out for both positive and negative black-swan events…because we believe they can seriously affect your wealth.

History certainly suggests that’s the case…

Today, our research indicates that the stars may be aligning for several disruptive events here in New Zealand.

The first is dangerous. It’s a market downturn on par with what the world experienced in 2008. Worse even.

Since that fateful correction, central banks around the world have flooded markets with ‘easy money’ or a low interest-rate policy that encourages businesses to borrow heavily.

The policy made sense for a few years following the crash…but markets quickly rebounded. And when they did, central bankers didn’t have the cojones to reverse the availability of cheap debt.

Borrowing skyrocketed.

Debt mounted.

And perhaps most importantly, businesses got used to it. Many went as far as calling easy money the ‘new normal’.

But those with an inkling of basic economic knowledge could see that this sort of lifestyle wasn’t sustainable. [openx slug=inpost]

 

Off the cliff

We’ve seen it before. Leading up to the year 2000 — same story. Leading up to 2008 — ditto.

Take a look at this chart from Advisor Perspectives and tell me you don’t see how every debt ramp-up has resulted in a serious tumble:

Comparison Chart

Source: Advisor Perspectives

To quickly explain the chart, the red line represents how much debt companies are taking on. The blue line represents the S&P 500, which is the stock market value of the 500 biggest companies in the US.

And those vertical grey columns? They’re recessions…

It almost seems obvious that we’ve hit another peak. That perhaps we’re even overdue.

So take a quick glance at the chart and see how the red and blue lines bounce up and down together…and how the grey recessions like to follow a steep upswing.

Now, with the Fed in the US keen on ramping up rates, business folks are sweating bullets. They know that the golden decade of debt is coming to a close…and their businesses might disappear with it.

And sadly, too many investors are glued to those companies via stocks. They’ve enjoyed the bullish ride on the mainstream party boat, blissfully unaware of the waterfall around the bend.

To drive the point home, we’re also seeing red alert on several of our other indicators: the yield curve on US treasuries, elevated P/E ratios across the market, slowing economic growth and in New Zealand, a well-inflated property bubble.

Together, these indicators are too ‘alarming’ for us to ignore.

Now, at the same time, we’re watching several trends emerge that could hold incredible positive effects for certain industries and early investors.

 

The ‘other’ black-swan events

Like the internet or the personal computer, we’re keeping our eye on the tech market.

One interesting trend is the ‘commercialisation of you’. Think Uber, Airbnb, Lime, or Onzo. These companies are building successful businesses by commercialising things you already have: your car, your home, or your electricity.

It’s not unthinkable to take that idea and combine it with the MASSIVE revolution of Big Data…to see where it might go next — commercialising your data.

Your phone already tracks a lot of your data. So does your computer. Or your smartwatch.

The data’s being recorded. It now needs to make it to those who care about it.

Nike, for example, might be interested to see how their customers use their products…in what temperature or weather…indoors or outside…duration…speed…etc.

All incredibly valuable for a company that develops sportswear.

It’s very possible that you could sell that data to Nike in the near future. Or you could sell it to every sportswear company.

There are a couple tiny companies in New Zealand exploring this kind of data-transactional technology…and arming up for what could be a brand-new industry.

Our research points to this perhaps becoming one of 2019’s biggest positive black swan events.

Another one, which I’m sure you’ve seen plenty of lately, is the ‘The Lumière Effect’. It’s an incredible tech revolution…one that’s right on the verge of mass adoption…and could lift early investors into significant returns.

I’ve done my due diligence on this topic and have compiled my findings in an exclusive report…if you’re interested in finding out more, feel free to click any of the special links in this email.

In conclusion, every once in a blue moon, we experience something that defies the odds.

Yesterday, it was an elephant seal sleeping in Mission Bay.

Tomorrow, it could be a global economic crash.

Or a technological revolution.

No matter what, it pays to be in-the-know…so that you can minimise the risk and maximise the return.

Best,

Taylor Kee
Editor, Money Morning New Zealand

 


Taylor Kee is the lead Editor at Money Morning NZ. With a background in the financial publishing industry, Taylor knows how simple, yet difficult investing can be. He has worked with a range of assets classes, and with some of the world’s most thought-provoking financial writers, including Bill Bonner, Dan Denning, Doug Casey, and more. But he’s found his niche in macroeconomics and the excitement of technology investments. And Taylor is looking forward to the opportunity to share his thoughts on where New Zealand’s economy is going next and the opportunities it presents. Taylor shares these ideas with Money Morning NZ readers each day.


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