Black Swan - A Gale of Creative Destruction
Updated
Idea for Macro/Tesla:
- We speculate a coming crisis, similar to the energy crisis of the 1970s-1980s, not with oil, but machinery, minerals, semiconductor chips and semiconductors/electronics materials.
- We expect the tech bubble to crash in the nearest future.
- This crisis will only be the first domino piece to fall in the Imperial Circle of the US financial system. It is the first moat of the financial elite.
1970s:
- "Growing computer power and engineering sophistication enabled the development of a host of new complex applications designed to improve accuracy and save the customer time and energy. The advantage provided by its unparalleled range of tools reinforced Schlumberger as the market leader, and that meant the company was in prime position to benefit from the upsurge in worldwide oil exploration triggered by the OPEC oil embargo of 1973." - Schlumberger
- Innovation and disruptive tech drove investors to speculate its valuation to monstrous levels during the exploration boom of the 1970s.
- From its initial public offering on the NYSE in 1962 to its peak in 1980, Schlumberger appreciated 50-fold. Its cult status among investors was rivaled only by Radio Corporation of America during the 1920s.
- "Jean Riboud is credited with building the world’s leading oilfield testing company. During his tenure, he produced a 19-fold increase in revenue (to $6.4 billion) and a 44-fold increase in earnings (to $1.2 billion), often producing results that were the best in the world. His success was generated through a commitment to long term planning, a dedication to research, and a strong decentralized management structure." - Harvard
- "Under his leadership, Schlumberger grew to become the largest oilfield services company in the world with interests in other sectors such as semiconductors. He expanded the company business by acquisitions, too; the taking over of Fairchild Camera and Instrument was one such acquisition. By the time he relinquished his position to his successor, Michel Vaillaud, in 1985, the company had a net profit of USI.2 billion on a revenue of US$6.4 billion and had presence in over 100 countries, controlling the operations of 70 percent of the world's oil wells. At that time, the company employed 80,000 people, held US$10.9 billion in assets and was considered by many as the best managed company in the world." - Wikipedia
- The real price of petroleum was stable in the 1970 timeframe, but there had been a sharp increase in American imports, putting a strain on American balance of trade, alongside other developed nations. During the 1960s, petroleum production in some of the world's top producers began to peak. Germany reached its production peak in 1966, Venezuela and the United States in 1970, and Iran in 1974.
- Although production in other parts of the world was increasing, the peaks in these regions began to put substantial upward pressure on world oil prices. Equally as important, control of the oil supply became an increasingly important problem as countries like West Germany and the U.S. became increasingly dependent on foreign suppliers for this key resource.
- In October 1973, the members of Organization of Arab Petroleum Exporting Countries or the OAPEC (consisting of the Arab members of OPEC) proclaimed an oil embargo "in response to the U.S. decision to re-supply the Israeli military" during the Yom Kippur war; it lasted until March 1974.
- By January 18, 1974, Secretary of State Henry Kissinger had negotiated an Israeli troop withdrawal from parts of the Sinai. The promise of a negotiated settlement between Israel and Syria was sufficient to convince Arab oil producers to lift the embargo in March 1974.
- Independently, the OPEC members agreed to use their leverage over the world price-setting mechanism for oil to stabilize their real incomes by raising world oil prices. This action followed several years of steep income declines after the recent failure of negotiations with the major Western oil companies earlier in the month.
- For the most part, industrialized economies relied on crude oil, and OPEC was their major supplier. Because of the dramatic inflation experienced during this period, a popular economic theory has been that these price increases were to blame, as being suppressive of economic activity. However, the causality stated by this theory is often questioned. The targeted countries responded with a wide variety of new, and mostly permanent, initiatives to contain their further dependency. The 1973 "oil price shock", along with the 1973–1974 stock market crash, have been regarded as the first event since the Great Depression to have a persistent economic effect.
- The decade of the 1970s was a period of limited economic growth due in part to the energy crises of that decade. Although the mid decade was the worst period for the United States the economy was generally weak until the 1980s. The period marked the end of the general post-World War II economic boom. It differed from many previous recessions as being a stagflation, where high unemployment coincided with high inflation.
- Other causes that contributed to the recession included the Vietnam War, which turned out costly for the United States of America and the fall of the Bretton Woods system. The emergence of newly industrialized countries rose competition in the metal industry, triggering a steel crisis, where industrial core areas in North America and Europe were forced to re-structure. The 1973–1974 stock market crash made the recession evident.
2004:
- Although Musk has long been the face of Tesla, he did not join the company until 2004. He invested $30 million into the company and became the chairman of its Board of Directors.
- Opening on the NASDAQ at $17 a share, Tesla raised $226 million in its IPO.
- Musk, in several public writings and statements, has said that he would like the company to eventually become an energy solution across many sectors.
- Tesla, lead by Musk has revolutionized the auto industry with disruptive tech innovations, leading investors to speculate its stock price to a monstrous valuation.
2018:
- The volume of trade in goods between the US and China has grown rapidly since the beginning of China's economic reforms in the late 1970s. The growth of trade accelerated after China's entry into the World Trade Organization (WTO) in 2001, with the US and China becoming one another's most important trading partners. The US has consistently imported more from China than it has exported to China, with the bilateral US trade deficit in goods with China rising to $375.6 billion in 2017.
- Initiating steel and aluminum tariff actions in March 2018, Trump said "trade wars are good, and easy to win." U.S. President Donald Trump in January 2018 began setting tariffs and other trade barriers on China with the goal of forcing it to make changes to what the U.S. says are "unfair trade practices" and intellectual property theft.
2019:
- January 14: An article in The Wall Street Journal reports that in China's 2018 trade surplus with the United States was a record $323.32 billion despite Trump's tariffs.
- March 6: The U.S. Department of Commerce stated that in 2018 the U.S. trade deficit with China reached $621 billion, the highest it had been since 2008.
- July 17: China announced an accelerated decrease in holdings of US treasury holdings, targeting 25% of its current holdings of $1.1 trillion.
- January 3: Reuters reported that in December 2019 the American manufacturing sector fell into its deepest slump in over a decade, attributing the decline to the U.S.-China trade war
- Analysis by Goldman Sachs in May 2019 found that the consumer price index for nine categories of tariffed goods had increased dramatically, compared to a declining CPI for all other core goods.
- Analysis conducted by Moody's Analytics estimated that through August 2019 300,000 American jobs had either been lost or not created due to the trade war, especially affecting manufacturing, warehousing, distribution and retail.
2020:
- China will spend over $300 billion on importing semiconductors this year, an industry expert told the World Semiconductor Conference in Nanjing on Wednesday, as the U.S. continues to put pressure on the country’s access to the most advanced chips.
- “China is the world’s largest importer of chips,” Wei Shaojun, vice chairman of the China Semiconductor Industry Association, said on Wednesday. China imported $301 billion worth of semiconductors last year—more than the $238 billion it spent on crude oil. Wei said that China will still spend $300 billion or more on semiconductors this year so long as “nothing out of the norm happens.”
- The “norm” is fast changing as U.S.-China relations deteriorate. The Trump administration has increasingly used its dominance in the semiconductor industry to cut off Chinese companies—particularly Huawei Technologies—from international supplies.
- COVID-19: "Some major industrial companies have closed facilities and are mulling the extent of layoffs to help curb the spread of the virus, as well as for economic reasons. Clearly, the manufacturing sector, which employs some 13 million workers in the US, is poised to be hit hard during this outbreak, primarily for two reasons: First, many manufacturing jobs are on-site and cannot be carried out remotely. Second, slowed economic activity has reduced demand for industrial products in the US and globally." - PwC
2021:
- By Feb. 4, Tesla had surpassed a stock price of $900.
- Mineral exploration boom under way.
- January 20: Trump left office and Joe Biden was inaugurated as president of the United States. Biden said that he did not have immediate plans to remove the tariffs and planned to review the phase one trade deal and discuss the matter with allies first.
- COVID: Currently, there are certain mutations and variants that are being followed closely by investigators across the world. For example, the mutation E484K present in the South African variant B.1.351 seems to create a greater risk for reinfection and decrease some of the efficacy of COVID-19 vaccines. This same E484K mutation has also been found to be present in the Brazilian variant P.1 and the New York variant B.1.526.
- We speculate that there is risk of further lockdowns due to COVID-19 mutations leading to further decline of manufacturing.
- During the 70s, the hungry oil and gas industry demanded energy, yet today, it is tech and the EV industry. They demand metals, semiconductor chips, and related electronic materials. Today, emerging nations like China and India have appetites like the US during the 1900s.
- Previously, the Bretton Woods agreement was abandoned because other countries had accumulated 3x the amount of USD than the amount of gold the US had, threatening a run on US gold!
- The current situation also shares similarities with the 1920s. There exists a threat of a liquidity crisis. There is a 1.5 quadrillion dollar derivatives overhang, and an "everything" bubble.
- Today, US dollars are not backed by anything. The reserve status is based largely on the size and strength of the U.S. economy and the dominance of the U.S. financial markets.
- We speculate that there is a cascade of liquidations of overleveraged hedge funds like Archego beneath the QE floor.
The question is, can the US "print" money forever? Can they purchase bonds forever? This is a topic for another post, but:
“Large government deficits exist and will almost certainly increase substantially, which will require huge amounts of more debt to be sold by governments — amounts that cannot naturally be absorbed without driving up interest rates at a time when an interest rate rise would be devastating for markets and economies because the world is so leveraged long." - Ray Dalio
“It is a sobering fact that the prominence of central banks in this century has coincided with a general tendency towards more inflation, not less. If the overriding objective is price stability, we did better with the nineteenth-century gold standard and passive central banks, with currency boards, or even with 'free banking.' The truly unique power of a central bank, after all, is the power to create money, and ultimately the power to create is the power to destroy.” - Paul Volcker
The financial system of the US will be tested, and possibly changed forever. The very concept of what money is may be re-evaluated.
GLHF,
DPT
Disclaimer:
We absolutely do not provide financial advice in any shape or form. We do not recommend investing based on our opinions and strongly cautions that securities trading and investment involves high risk and that you can lose a lot of money. Loss of principal is possible. We do not recommend risking money you cannot afford to lose. We do not guarantee future performance nor accuracy in historical analyses. We are not registered investment advisors. Our ideas, opinions and statements are not a substitute for professional investment advice. We provide ideas containing impersonal market observations and our opinions. Our speculations may be used in preparation to form your own ideas.
- We speculate a coming crisis, similar to the energy crisis of the 1970s-1980s, not with oil, but machinery, minerals, semiconductor chips and semiconductors/electronics materials.
- We expect the tech bubble to crash in the nearest future.
- This crisis will only be the first domino piece to fall in the Imperial Circle of the US financial system. It is the first moat of the financial elite.
1970s:
- "Growing computer power and engineering sophistication enabled the development of a host of new complex applications designed to improve accuracy and save the customer time and energy. The advantage provided by its unparalleled range of tools reinforced Schlumberger as the market leader, and that meant the company was in prime position to benefit from the upsurge in worldwide oil exploration triggered by the OPEC oil embargo of 1973." - Schlumberger
- Innovation and disruptive tech drove investors to speculate its valuation to monstrous levels during the exploration boom of the 1970s.
- From its initial public offering on the NYSE in 1962 to its peak in 1980, Schlumberger appreciated 50-fold. Its cult status among investors was rivaled only by Radio Corporation of America during the 1920s.
- "Jean Riboud is credited with building the world’s leading oilfield testing company. During his tenure, he produced a 19-fold increase in revenue (to $6.4 billion) and a 44-fold increase in earnings (to $1.2 billion), often producing results that were the best in the world. His success was generated through a commitment to long term planning, a dedication to research, and a strong decentralized management structure." - Harvard
- "Under his leadership, Schlumberger grew to become the largest oilfield services company in the world with interests in other sectors such as semiconductors. He expanded the company business by acquisitions, too; the taking over of Fairchild Camera and Instrument was one such acquisition. By the time he relinquished his position to his successor, Michel Vaillaud, in 1985, the company had a net profit of USI.2 billion on a revenue of US$6.4 billion and had presence in over 100 countries, controlling the operations of 70 percent of the world's oil wells. At that time, the company employed 80,000 people, held US$10.9 billion in assets and was considered by many as the best managed company in the world." - Wikipedia
- The real price of petroleum was stable in the 1970 timeframe, but there had been a sharp increase in American imports, putting a strain on American balance of trade, alongside other developed nations. During the 1960s, petroleum production in some of the world's top producers began to peak. Germany reached its production peak in 1966, Venezuela and the United States in 1970, and Iran in 1974.
- Although production in other parts of the world was increasing, the peaks in these regions began to put substantial upward pressure on world oil prices. Equally as important, control of the oil supply became an increasingly important problem as countries like West Germany and the U.S. became increasingly dependent on foreign suppliers for this key resource.
- In October 1973, the members of Organization of Arab Petroleum Exporting Countries or the OAPEC (consisting of the Arab members of OPEC) proclaimed an oil embargo "in response to the U.S. decision to re-supply the Israeli military" during the Yom Kippur war; it lasted until March 1974.
- By January 18, 1974, Secretary of State Henry Kissinger had negotiated an Israeli troop withdrawal from parts of the Sinai. The promise of a negotiated settlement between Israel and Syria was sufficient to convince Arab oil producers to lift the embargo in March 1974.
- Independently, the OPEC members agreed to use their leverage over the world price-setting mechanism for oil to stabilize their real incomes by raising world oil prices. This action followed several years of steep income declines after the recent failure of negotiations with the major Western oil companies earlier in the month.
- For the most part, industrialized economies relied on crude oil, and OPEC was their major supplier. Because of the dramatic inflation experienced during this period, a popular economic theory has been that these price increases were to blame, as being suppressive of economic activity. However, the causality stated by this theory is often questioned. The targeted countries responded with a wide variety of new, and mostly permanent, initiatives to contain their further dependency. The 1973 "oil price shock", along with the 1973–1974 stock market crash, have been regarded as the first event since the Great Depression to have a persistent economic effect.
- The decade of the 1970s was a period of limited economic growth due in part to the energy crises of that decade. Although the mid decade was the worst period for the United States the economy was generally weak until the 1980s. The period marked the end of the general post-World War II economic boom. It differed from many previous recessions as being a stagflation, where high unemployment coincided with high inflation.
- Other causes that contributed to the recession included the Vietnam War, which turned out costly for the United States of America and the fall of the Bretton Woods system. The emergence of newly industrialized countries rose competition in the metal industry, triggering a steel crisis, where industrial core areas in North America and Europe were forced to re-structure. The 1973–1974 stock market crash made the recession evident.
2004:
- Although Musk has long been the face of Tesla, he did not join the company until 2004. He invested $30 million into the company and became the chairman of its Board of Directors.
- Opening on the NASDAQ at $17 a share, Tesla raised $226 million in its IPO.
- Musk, in several public writings and statements, has said that he would like the company to eventually become an energy solution across many sectors.
- Tesla, lead by Musk has revolutionized the auto industry with disruptive tech innovations, leading investors to speculate its stock price to a monstrous valuation.
2018:
- The volume of trade in goods between the US and China has grown rapidly since the beginning of China's economic reforms in the late 1970s. The growth of trade accelerated after China's entry into the World Trade Organization (WTO) in 2001, with the US and China becoming one another's most important trading partners. The US has consistently imported more from China than it has exported to China, with the bilateral US trade deficit in goods with China rising to $375.6 billion in 2017.
- Initiating steel and aluminum tariff actions in March 2018, Trump said "trade wars are good, and easy to win." U.S. President Donald Trump in January 2018 began setting tariffs and other trade barriers on China with the goal of forcing it to make changes to what the U.S. says are "unfair trade practices" and intellectual property theft.
2019:
- January 14: An article in The Wall Street Journal reports that in China's 2018 trade surplus with the United States was a record $323.32 billion despite Trump's tariffs.
- March 6: The U.S. Department of Commerce stated that in 2018 the U.S. trade deficit with China reached $621 billion, the highest it had been since 2008.
- July 17: China announced an accelerated decrease in holdings of US treasury holdings, targeting 25% of its current holdings of $1.1 trillion.
- January 3: Reuters reported that in December 2019 the American manufacturing sector fell into its deepest slump in over a decade, attributing the decline to the U.S.-China trade war
- Analysis by Goldman Sachs in May 2019 found that the consumer price index for nine categories of tariffed goods had increased dramatically, compared to a declining CPI for all other core goods.
- Analysis conducted by Moody's Analytics estimated that through August 2019 300,000 American jobs had either been lost or not created due to the trade war, especially affecting manufacturing, warehousing, distribution and retail.
2020:
- China will spend over $300 billion on importing semiconductors this year, an industry expert told the World Semiconductor Conference in Nanjing on Wednesday, as the U.S. continues to put pressure on the country’s access to the most advanced chips.
- “China is the world’s largest importer of chips,” Wei Shaojun, vice chairman of the China Semiconductor Industry Association, said on Wednesday. China imported $301 billion worth of semiconductors last year—more than the $238 billion it spent on crude oil. Wei said that China will still spend $300 billion or more on semiconductors this year so long as “nothing out of the norm happens.”
- The “norm” is fast changing as U.S.-China relations deteriorate. The Trump administration has increasingly used its dominance in the semiconductor industry to cut off Chinese companies—particularly Huawei Technologies—from international supplies.
- COVID-19: "Some major industrial companies have closed facilities and are mulling the extent of layoffs to help curb the spread of the virus, as well as for economic reasons. Clearly, the manufacturing sector, which employs some 13 million workers in the US, is poised to be hit hard during this outbreak, primarily for two reasons: First, many manufacturing jobs are on-site and cannot be carried out remotely. Second, slowed economic activity has reduced demand for industrial products in the US and globally." - PwC
2021:
- By Feb. 4, Tesla had surpassed a stock price of $900.
- Mineral exploration boom under way.
- January 20: Trump left office and Joe Biden was inaugurated as president of the United States. Biden said that he did not have immediate plans to remove the tariffs and planned to review the phase one trade deal and discuss the matter with allies first.
- COVID: Currently, there are certain mutations and variants that are being followed closely by investigators across the world. For example, the mutation E484K present in the South African variant B.1.351 seems to create a greater risk for reinfection and decrease some of the efficacy of COVID-19 vaccines. This same E484K mutation has also been found to be present in the Brazilian variant P.1 and the New York variant B.1.526.
- We speculate that there is risk of further lockdowns due to COVID-19 mutations leading to further decline of manufacturing.
- During the 70s, the hungry oil and gas industry demanded energy, yet today, it is tech and the EV industry. They demand metals, semiconductor chips, and related electronic materials. Today, emerging nations like China and India have appetites like the US during the 1900s.
- Previously, the Bretton Woods agreement was abandoned because other countries had accumulated 3x the amount of USD than the amount of gold the US had, threatening a run on US gold!
- The current situation also shares similarities with the 1920s. There exists a threat of a liquidity crisis. There is a 1.5 quadrillion dollar derivatives overhang, and an "everything" bubble.
- Today, US dollars are not backed by anything. The reserve status is based largely on the size and strength of the U.S. economy and the dominance of the U.S. financial markets.
- We speculate that there is a cascade of liquidations of overleveraged hedge funds like Archego beneath the QE floor.
The question is, can the US "print" money forever? Can they purchase bonds forever? This is a topic for another post, but:
“Large government deficits exist and will almost certainly increase substantially, which will require huge amounts of more debt to be sold by governments — amounts that cannot naturally be absorbed without driving up interest rates at a time when an interest rate rise would be devastating for markets and economies because the world is so leveraged long." - Ray Dalio
“It is a sobering fact that the prominence of central banks in this century has coincided with a general tendency towards more inflation, not less. If the overriding objective is price stability, we did better with the nineteenth-century gold standard and passive central banks, with currency boards, or even with 'free banking.' The truly unique power of a central bank, after all, is the power to create money, and ultimately the power to create is the power to destroy.” - Paul Volcker
The financial system of the US will be tested, and possibly changed forever. The very concept of what money is may be re-evaluated.
GLHF,
DPT
Disclaimer:
We absolutely do not provide financial advice in any shape or form. We do not recommend investing based on our opinions and strongly cautions that securities trading and investment involves high risk and that you can lose a lot of money. Loss of principal is possible. We do not recommend risking money you cannot afford to lose. We do not guarantee future performance nor accuracy in historical analyses. We are not registered investment advisors. Our ideas, opinions and statements are not a substitute for professional investment advice. We provide ideas containing impersonal market observations and our opinions. Our speculations may be used in preparation to form your own ideas.
Trade active
Colonial pipeline suffered a cyberattack.Result: "Gas Flowing 5 MPH Will Take Two Weeks to Reach New York Once Pipeline Is Reopened Fuel on Colonial system will take 15 days to hit New York area Gasoline shortages are occurring from U.S. South to East Coast"
Trade active
Iraq raises the price of oil exports to the US, while lowering prices for Asia, while offering to buy stake in Exxon' major oilfield. The offer was in oil."To generate more revenue, Iraq plans to increase light production by 100,000 barrels per day (bpd) to reach 1.1 million bpd."
Speculation:
Commodity squeeze is underway. The false money printed by the Fed is being rejected, and the run on US assets is beginning.
Global actors are beginning to exit the USD financial system, and are moving toward trading based on tangible assets.
Trade active
China warns of global asset bubble risks:bloomberg.com/news/articles/2021-05-29/china-s-banking-regulator-warns-of-global-asset-bubble-risks
"As a reminder, the global economic cycle has become somewhat synonymous with China’s credit impulse over the years. Ironically, a pandemic that began on Chinese soil provided the impetus for a serious infrastructure push in the US. If Joe Biden’s fiscal proposals are enacted, it could mean that, at least for the next few years, the global economy will turn on the fiscal impulse in Washington rather than the Chinese credit cycle."
heisenbergreport.com/2021/05/12/chinas-credit-impulse-just-turned-negative/
Coincidence? There are no coincidences in politics, according to Roosevelt.
China's credit impulse just turned negative. Let us see if the US gambit will pay off, or it will fall flat, letting its citizens pay the price.
Trade active
"Economic Boom" already priced in. Like the 80s, only disappointment awaits.
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