Insider

The term “black swan,” as coined by Nassim Taleb, refers to an unusual event that nobody was expecting because such an event had never happened before. Until a black swan has been seen, they simply don’t exist; their probability is zero.

We are now in the midst of exactly what we might predict would happen when a world accustomed to sufficient net energy to drive its processes runs short of that surplus. This is our ultimate black swan.

Trained and raised in a world of ethereal numbers and ideas, today’s economists simply lack the proper framework to understand that all of the ‘rules’ they learned about monetary theory, interest rates, debt accumulation and all the rest, were not actually rules, they were temporary conditions permitted by abundant net free energy.

Brent crude oil at $124/bbl is telling us something. While the unrest in the MENA region is certainly driving some of the price gain, it is important to note that the price of Brent crude has been climbing more or less steadily since July of 2010, when it was at ~$80/bbl.

Saudi Arabia has said many times that it has lots of spare capacity and can easily fill the gap left by Libya’s temporary (or perhaps prolonged) departure. There are two problems with this view.

On Friday, March 11, 2011, at 2:46 p.m. Tokyo time, an earthquake measuring 9.0 on the Richter scale struck, sending shockwaves through the earth’s crust and devastating walls of water into helpless coastal towns less than ten minutes later.

Within hours, it was immediately apparent that a nuclear complex had been mortally stricken, a combination of extremely rare natural circumstances and insufficient design parameters working together to first cripple and then ruin the plants.

For those concerned about the reports of contaminated milk and radioactive rain, the levels are far, far below anything that should be on your personal worry list at this time. Perhaps that could change, but something would have to materially deteriorate at the Fukushima plant complex before I would devote much time to that here in the Americas.

We always knew that this portion of the Great Destruction was never going to be easy. The main effect of any great bear market is to destroy the wealth of as many people as possible.

Simply moving everything to cash is not an option, because cash itself may lose its value more rapidly than it can be converted back into primary and secondary sources of wealth. Owning stocks and bonds is not a viable strategy, especially in a world where their prices are influenced/manipulated by the daily actions of the Fed and certain so-called ‘trading firms’ have turned in four-year win streaks without a single daily loss.

Parking everything in precious metals is probably the safest of the strategies, but that, too, is fraught with peril, as we still cannot be certain if inflation or deflation is going to win the day.

I deeply regret that this is the world in which we currently live, but here we are, and our job is to do the best we can.

I have two philosophies about investing.

The first is that I personally hate losses more than I fear missing out on gains. Some people are built exactly the opposite, and that fact helps to make markets the fun, dynamic places we know and love.