Dear Energy and Capital Reader,
Crisis & Opportunity Editor Christian DeHaemer recently revealed his Black Swans list for the coming year to readers of our sister publication, Wealth Daily. The article was so well-received that I thought you too might like to see what Chris predicts for 2010.
Happy New Year,
John Phillips
Publisher, Energy and Capital
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Twelve Black Swans for 2010
It’s that time of year again. The eggnog is turning… Christmas trees are cheap… and all the world anticipates my annual Black Swan list.
These aren’t predictions — any fool can make a prediction. A Black Swan event is, by definition, unpredictable. And to predict the unpredictable is just one step ahead, one step better.
In the last few years, we’ve been hit with a number of these events that come from the blue and destroy with a vengeance; the biggest of these was the credit crisis of fall 2007.
So I give you some eventualities to ponder for 2010…
1. China Blows Up
Andrew Lawrence proposed the Skyscraper Index in the aftermath of the 1998 Asian Contagion. His theory says that the world’s tallest buildings have risen on the eve of economic downturns. That is, countries that put up the world’s tallest buildings enter an economic downturn shortly thereafter.
There is a lot of evidence to back him up: 1907 panic in the U.S. was marked by the Singer Building; the Great Depression followed the Empire State Building; the Asian currency crisis of 1998 — the Petronas Twin Towers.
The world’s tallest building at present is the Burj Dubai, which will officially open on January 4, 2010. As you know, real estate prices in Dubai have been cut in half and their biggest company, Dubai World, just defaulted on $50 billion.
The next tallest building being built is The Shanghai Tower in China — expected to be 2,073 feet tall to be completed in 2014.
2. The UK Defaults
High national debt, high inflation, high unemployment, plummeting housing prices, and a second round of bank failures coupled with political mismanagement sends the UK into insolvency. The Queen goes crown-in-hand to beg for money from the IMF.
3. No More Coal Plants
All new electric plants built in 2010 will be fired by natural gas. New drilling methods have increased the supply by 58%. Natural gas is clean, cheap, and it works. There is much money to be made in companies like Chicago Bridge and Iron (NYSE: CBI) that make transfer and storage facilities.
4. Uranium Surges to $90
The price of uranium launched in 2007 up to $145 a pound. Now, after the crash, it is back to $40 a pound. But the same demand that drove uranium up is still there. China is currently building eight nuclear power plants and has another twenty in the planning stages; Britain is building ten. Egypt, India, Sweden, South Korea, and most of Africa are building or seeking to build nuclear energy facilities.
The World Nuclear Association just had a meeting which concluded uranium demand is increasing and at the same time, previous production projections have dropped off due to the credit crisis. Companies like Cameco (NYSE: CCJ) will benefit.
5. Democrats Hold Their Congressional Majority
Strong economic performance in the second half of 2010 will drive down unemployment. The Democrats will be hailed as heroes who saved the economy. The average voter won’t care about the new debt burden. And this — coupled with a schism in the Republican Party between the Old Guard and the Palin/Tea Party — will send the GOP into a leaderless chaos. Spending will continue to increase.
6. Mongolia Stock Exchange Becomes the Best Performing Market
China is the world’s largest consumer of oil, coal, meat, grain, copper, and [in the near future] uranium. The one country that can supply its constantly growing needs is under-utilized Mongolia.
Mongolia recently dropped its tax rate from 68% income to 30% ownership in new mines/wells. A major deal with Rio Tinto will double the GDP. Twenty-two other deals, possible in coal, oil, uranium, rare earth metals, copper, gold, etc., are pending… And the Mongolian Stock Market is extremely undervalued, with month stocks trading at a P/E under ten.
7. China Drops the Dollar Peg
After years of maintaining a link to the U.S. dollar to ensure cheap exports (and in the face of an ever-falling dollar), China pursues a strong yuan policy in order to buy up natural resources and create domestic consumption.
8. Iran Gets the Bomb and No One Cares
Much like Pakistan and India, Iran will build its nuclear warhead. Israel will be powerless to stop them due to the hidden, protected, and duplicate nature of the manufacture. The Obama Administration will send a strongly-worded letter in response.
9. The Housing Bust: Part II
Housing prices will take another hit as mortgage rates climb past 10%, the ARM balloon payments reset monthly mortgage payments for millions, banks finally sell their inventory, and a large portion of those who are underwater just stop paying. Expect another 30% drop in prices.
10. Dow Hits 20,000
No one is talking about an extended bull market, and I’ll grant you that with the amount of debt the U.S. has taken on (on both personal and national levels), it seems the market’s geared for a long up-move.
But consider this, dear reader: when Zimbabwe had run-away inflation in 2007, it also had the best performing stock market in the world. Take a look:
According to Austrian Business Cycle Theory, the extreme volatility you see in the business cycle is not the natural state. Rather, it is one created by excess growth in money supply and credit.
New money is not simply given to everyone equally and at the same time… New money flows to certain entry points and filters out.
In this way, the money that is currently being produced by the Treasury and hoarded by the banks could flow to equities and launch another bubble.
11. Solar Power Goes Mainstream
Renewable energy will account for 15% of electricity by the end of the year — up from 12% this year. Wind energy grew 28% in 2009; it will grow even faster next year. A company that’s looking good is J.A. Solar (NASDAQ: JASO).
12. Uncle Sam Officially Loses the War on Drugs
Four states — Massachusetts, California, New Hampshire, and Washington — seek to legalize marijuana. Currently in each state, there are bills being debated which will result in regulation and legalization of marijuana.
This new political will, coupled with a need to cut back in spending, will dramatically reduce the budget of the DEA as well as local police. One company in this growth business is Medical Marijuana, Inc. (MJNA.PK).
Have a great 2010,
Christian DeHaemer
(and soon-to-be-launched Crisis & Opportunity)
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