Wild Cards

We remain optimistic re US growth, believing that it will exceed expectations, especially employment numbers. But we noted earlier the existence of “wild cards,” events presently off radar.

The business of the future is to be dangerous. So let’s take a look at the odds of significant damage; that is, the odds of an event that has not been priced in and which would retard US growth.

A strike on Iranian nuclear facilities is such a wild card. This event would spike crude prices, at least by 50%. That’s a retardant folks. The Iranians would strike both Saudi oil fields and the Israelis, and attempt to blockade the Straits. Odds for such an event - 40%.

Another wild card is related to the present crisis of peripheral European credits. At the moment Ireland may soon loose her sovereignty; Portugal is in miserable shape, Spain not far behind. This turmoil has been partially priced in. The EU has an emergency fund but more prosperous credits like Germany aren’t anxious to contribute (attesting to the stupidity of the EU in the first place and the accuracy of Thatcher’s prediction). The wild card here is not that Ireland or Portugal become EU protectorates, like Greece, but is for contagion on a grander scale - an EU/Euro collapse and then the bank pandemonium that may follow. From Jeremy Warner in today’s Telegraph, “There must come a point where bailing out the fringe threatens the creditworthiness of the core. We are not there yet, but it's plainly not beyond the bounds of possibility.” Odds - 35%.

Another wild card is a sudden strike by the Chinese on US debt. Odds - 25%.

Another, with the same result, is a rapid blow back of inflation/weak $ tied to recent Fed antics, requiring a sharp contraction by the Fed and/or a full blown currency/trade war. We put this one at 25%. (This is not to say that the Fed’s recent actions are constructive in any way; they aren’t and they’re damaging to the integrity of the Fed to boot.)

Another, contributed to this piece by our friend Christian de Ryss, is traction by the way of muslim thuggery, perhaps a lucky strike at major infrastructure in the UK or Germany; perhaps even in the US and the paralysis that follows. We don’t dare print the odds, even if we had a clue.

No doubt THE key wild card is there, right now, beyond our grasp, waiting in the sidelines for a trigger.

Cross the fingers.

Robert Craven