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Monday November 15, 2010

Where's that "Tipping Point"?

I don't know how many times I'm going to have to say this, but I will try once more with the hope that it will sink in:  A 'tipping point' is not necessarily a single "event" as it is a massive change in how things work which often is not apparent instantly.

Did the 'tipping point' begin on Sunday morning? Yes.  Not only did we have lots of release language surrounding the release of Aung San Suu Kyi of Burma/Myanmar, but there was the release of  Paul & Rachel Chandler who had been held by Somali pirates for 388 days.

Then - almost exactly on schedule - time-wise - we've had a big outburst of earthquakes in the area south of Yemen and northeast of Djibouti.  And no, we're not talking 2's and 3's.  This is an area which hasn't been seismically active and in the past 30-hours it has suddenly popped off - not with one or two - but with 40 quakes on the USGS site.

Meantime, in Indonesia, the Child of Krakatau (Krakatoa) has been active every five minutes. 

As I pointed out for Peoplenomics readers on Sunday, there very well could be a once-in-a-lifetime geological event building and here's why:  Back in 2009, there were reports of a great crack in the earth that had opened up in Somalia south of the Dabbahu volcano.  (see triangle below)

Now, let's see what happens when you draw a line from Dabbahu volcano, through the earthquake swarm in the Gulf of Aden/Djibouti/ Off Yemen quake area.  Where does it point?

In the direction of the Indonesia quakes at Merapi and possibly soon Krakatau.

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Then there's the matter of  "What tipped, and how soon will it be apparent in economics?"  Good question, since the tipping period is supposed to be primarily economic in nature, although it's possible it could be otherwise. 

The word "failure" is being associated with the G20 talks this weekend, which means global markets are upset this morning.  Whether it will just pass, or whether it will escalate remains to be seen.

Commodities have tumbled the most in 18-months as reports that China will raise its interest rates in order to combat inflation, and that in turn would ripple into reduced purchases and that in turn leads to lower prices.

In Europe, Ireland is in the midst of a financial implosion so severe that young people are fleeing the country to avoid being caught in the failing economy.  The Dow Jones news service reported this morning that the ECB is standing ready with its $750 billion bailout facility if Ireland needs it, but as was the case of the Icelandic meltdown in 2009-2010, there's nothing simple about such offers.

While the Euro-lenders are waving flags at Ireland, the Portuguese foreign minister says that his country might leave the Eurozone over austerity demands being placed on his country.

Near as I can figure, the failed G20 was like turning on the blender in global economics.  As the EU faces troubles and as China thinks about slowing, there's been a big surge in the purchasing power of the US dollar.  In fact, the Financial Times notes that the "Dollar rises to six-week high".

What that in turn could lead to would be the Dow tumbling to six-week lows, specifically because the US Dow has been a kind of 'inverse dollar" play.  In other words, as the dollar has gone down, more of them would be needed to 'buy the Dow" and this has run up markets.

With the dollar quickly gaining strength, that could put the Dow quickly back down to six-week lows, which by my reckoning might mean a quick visit to the 10,682 level, the intraday low October 4th.  Lower if the dollar continues to strengthen.

Very short term, futures are up this morning, perhaps on flight to safety and off in the background, we see there are reports starting to surface that China's banks are stopping real estate loans in order to dampen, or prevent, a Western style housing bubble.

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To be sure, none of this looks like a 'life changer, yet.  In fact, I've been getting a fair number of emails like this one:

"George,

The only thing tipping over today is your credibility and Cliff's. This is funny though since there isn't a sane person that reads your blog that wants you to be right. We all hope you are wrong. Have you thought about what you will do if you are? This would wipe out a lot of your reputation and trash the web bot project.

I've said it before but apparently I need to say it again:  A tipping point is not a single event.   I have outlined a lot of possibilities but I've tried to say repeatedly not a single event.  

If you remember the July 2001 tipping point, it came before the 9/11 attack.  July was when - we would later learn - the last decisions about the 9/11 attack were reportedly made while AQ was partying in Las Vegas.

Similarly, when we went through a state-change in October of 2008, I remember getting the same early flood of emails telling me "You guys got it wrong!  Frauds!  Creeps!" with email cc's to half the population of earth.  

Strangely, not a one of these cretins sent an apology when six months later the Dow had fallen to 6,627.

Will this 'tipping point' bring similar change?  Perhaps.  Perhaps not.  But to rush to a decision about it a mere 24-hours is pretty stupid. Specific dates are the hardest part of this project.  

Here's a reader who obviously "gets it":

"...thought I'd chime in on 'tipping points'. A tipping point need not be destructive, dramatic or even particularly noticeable at the time. Its just the point that which a particular rush to a particular outcome further down the line becomes inexorable. Almost nobody sees a tipping point at the time, its normally a job for historians. "

Nevertheless, people want to find a single big headline and I keep repeating this, it's not likely to be a single big headline.

If you can't sit back and wait for events to arrive, don't blame me (or Clif) for your own impatience.  The forecast is the forecast.  Over the longer term, if we're right, I know a lot of folks who are well-prepared for whatever may come. 

In the absolute best case, if NOTHING out of the ordinary "run of news" items happens, then we won't need to buy toilet paper for six months and the stored foods we've bought already will be a dandy hedge against higher food prices to come.  You saw the latest reports about inflation as measured at Wal-Mart?  the government's latest CPI report is due out on Wednesday.

Yes - it's possible we got this all wrong.  But until we're some distance into things, I'm not prepared to jump to any conclusions.  Experience says (and I've written it up several times as the 'picket  fence problem') just gathering the data will decide over times whether it's a hit - or a miss.

As of this morning, I simply don't know.  The news over the next month or two should be a good arbiter.

But no, I don't think the "Building What?" story (which asks those vexing questions about WTC 7) is anything other than a sidebar....