Its no good backing well known investment threads because the more popular the idea the more likely the idea is “priced in.”
To make the big money you have to be ahead of the herd. This is why folks insider trade, because insider information enables the crook who uses it to make lots of money from non-priced in info.
So as traders we need to identify, what the youngsters might call “WTF” moments. Things that will happen that people would scare believe could occur.
Unusally there a three big “holy cow” events that could happen next year that would put the cat amougst the pigeons.
The first is unexpected but shouldn’t be. In fact everyone expects to grandstand this disaster right up to the last moment when angels will sing and the disaster is averted. This is of course the antagonym-istic “fiscal cliff.” Everyone thinks we won’t go off it. There will be a shock if we do, even though it makes perfect sense to do so.
You don’t have to be a puritanical zealot to try to get from a trillion dollar deficit to a $500 billion dollar deficit. You don’t have to be some crazy gold standard loony to want to get back from a death spiral of spending to something at least on the edge of the map of sustainable economics. So why not swap a 9 month economic dip to get back from the event horizon of economic collapse.
If Obama can back the republican’s into looking like they pushed the US off the cliff, he will get the his impossible demands, baked into the cliff mutual destruction pact, delivered and a massive rebalance moment he can blame the downside for on his opposition and in time the crucial benefits of getting the US back from the financial whirl pool set to drag the country down the global economic plug hole.
So there is a chance the “fiscal cliff” will be leapt from and a side bet on it could pay off big.
Of course politicians tend to be gutless with their own skins, so all these three “shock and awe” wild cards are not certains, merely possibilities with a fat jackpot attached for the speculator who gets in early on one that pays out.
Japan could sack the Bank of Japan. That is to say, take away its independence and replace the leadership of their central bank with political stooges. Abe won the election on the platform on getting the BOJ to go Banzi and press CTRL-P and flood Japan with all the money it can till inflation appears. Bank of Japan always says yes and then sorry, it didn’t work. Eviscerating the BOJ as hinted at, would cause an upending of the Yen and economic shock wave around the world. If it happens, trillions will be made and lost.
Again the question is, do the politicians have the “prairie oysters” to follow through on their promises.
Finally there is the UK.
The ruling conservative parties chance of re-election in a couple of years is less than zero. However if they called an election to act as a mandate for an in or out referendum on leaving Europe, they would probably win 5 more years in power. The Brits would pull the plub on the EU and cries of “Sacre Bleu,” “donner und blitzen” and “mama mia” and much worse would fill the air in politican and financial circles.
As a black swan, this is way more likely to swim down the Thames in London than 99% of Europeans would dream of.
These are of course “Tail risks,” but unlikely events are not only as rare as mainstream statistics suggest, they also come in runs. “Tail risks” pay out big if you buy options on them. The reason they are so rare is because they are driven by “black noise.” Simplistically “black noise” is created by something rare but massive, that sets off smaller events which are also rare and unlikely but become way more probably after the initial balloon goes up. The great recession is the big event and these wild cards are possible because they will be a consequence of the biggest economic Snafu since WW2.