Most of the time, when pundits say "black swan," they really mean "a disruptive event that no one saw coming – much less had any idea how to deal with."
So they're manageable, but they can still be downright dangerous to your money. That means a broad perspective, a willingness to entertain all the possibilities, and robust asset protection strategies – like the ones I'm about to show you – go a long way in helping you avoid these events.
The best part is, you can even make some nice money while everyone else loses their shirt…
This Can Be a Very Profitable Exercise
Laying some of the groundwork for this exercise is Société Générale SA's (EPA: GLE) (SocGen) recent quarterly Global Economic Outlook.
In this report, the international French bank proposes a number of potential "black swan"-type events, and then provides some detail on their thinking about how likely these are to occur and what kinds of effects they may have on the global economy.
Interestingly, SocGen sees more downside risks than possible upside surprises. That's an outlook I'd have to agree on.
Let's look at SocGen's forecasting and analyze the risks, rewards, and possible impacts.
First, the disruptors…
No. 1. A "Brexit" (British Exit) from the European Union: 45%
From SocGen: The United Kingdom's Prime Minister Cameron is likely to hold a referendum on whether the UK should exit the European Union. That's likely to take place late next year. Expected impact: Low.
Now, the UK is part of the EU and already wields a fair degree of independence via its own pound sterling currency. With all the problems Greece has faced, it's still part of the EU. So I don't see the UK going anywhere, just negotiating a better deal. I peg the probability of a Brexit at 10%.
No. 2. A Hard Landing for China: 40%
From SocGen: Expect a 40% risk of seeing a lost decade scenario instead in the medium term. Risk of hard landing comes from credit crunch due to intensified capital outflows, bad loans, lack of central bank stimulus; failing housing demand could see developers fail, cutting development; capacity overhang means manufacturing could keep suffering, leading to bankruptcies and unemployment.
I believe China's administration realizes the magnitude of the challenge in transitioning to a consumer economy. It's likely to use its massive reserves and to stimulate through quantitative easing (QE) and lowering rates to ensure the smoothest transition possible, as not doing so carries huge risks to stability. I see the probability of a hard landing at 20%.
No. 3. The American Consumer Saves More: 25%
Hey, I guess it could happen, but with such low oil/gasoline prices, consumers are already saving more by default. I think the risk of more saving is closer to 15%. It's sad to see that SocGen considers saving more to be a negative, too.
No. 4. A New Global Recession: 10%
Here I think SocGen has totally underestimated the odds. I believe they're likely much closer to about 35%. But don't forget – there would almost certainly be a worldwide coordinated mega-QE program to combat this.
No. 5. The Fed Hikes Rates Too Late: 10%
Is SocGen kidding? It's already too late. So, I'd have to peg this at 100% probability, if that's possible. But better late than never, I guess. Anyways, a rate hike is highly likely this month, so the next issue will be the size of the hike, then follow-through with subsequent hikes, their size and frequency. Of course, Yellen's measured pace means don't expect too much too fast.
Now, it has to be said that 2016 holds the possibility of a few positive surprises, too, though not as many as we'd like. These actually have the potential to improve the global economic outlook – and line our pockets, if we're properly prepared.
About the Author
Peter Krauth is the Resource Specialist for Money Map Press and has contributed some of the most popular and highly regarded investing articles on Money Morning. Peter is headquartered in resource-rich Canada, but he travels around the world to dig up the very best profit opportunity, whether it's in gold, silver, oil, coal, or even potash.