5 Gray Swan Events Investors May Well See in 2018

 | Dec 28, 2017 | 12:05 PM EST
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

cybqy

,

baba

,

amzn

,

TCEHY

,

nmr

The Japanese investment bank Nomura (NMR) has 10 "gray swans" to watch out for in 2018. Unlike their cousins the black swans, which simply pop out of nowhere and therefore can't be predicted, gray swans aren't hidden or invisible, just largely ignored. At our peril, it seems.

They are topics that aren't widely discussed, the bank says -- not the question of what to do over North Korea, or whether nationalists will triumph in the Italian elections.

I'll tackle the first five in today's story and revisit the gray-swan family by addressing the other five tomorrow.

Shock 1: What the movies tell us about 2018 

There are three notable movies specifically set in 2018: Terminator Salvation (the 2009 iteration of the franchise Arnold Schwarzenegger began), Rollerball (1975) and Iron Sky (2012).

In the Terminator movie, the company Cyberdyne Systems has created Skynet, a computer system designed to safeguard the world by preventing attacks. Instead, of course, it develops artificial intelligence and decides humans are the biggest threat to the planet. Among its host of weapons, it controls mobile phones, drones and the cyborg Terminators of the title.

It is actually true that humans are the biggest threat to the planet -- and just about anything on it, of course. Artificial intelligence will soon control your four wheels, your fridge, your flight plan and your phone. And there is even a real Japanese company called Cyberdyne (CYBQY) , which creates robotic exoskeletons.

Cyberdyne recently won approval from the U.S. Food & Drug Administration for its Medical HAL metal exoskeleton to be used to assist patients with spinal-cord injuries. Medical HAL calls to mind another artificially intelligent computer system, in Stanley Kubrick's 2001: A Space Odyssey, who also decided humans were a threat. Eerie. 

In Rollerball, the world is run by one all-powerful monopoly, Energy Corp. It replaces war with the violent roller-skating derby rollerball, only to find the star player becomes a superhero in the eyes of the public. So Energy Corp. decides to kill him. They are unsuccessful, of course, and the hero ends up revealing the true evil behind Energy Corp. to the world.

Neither movie sounds crazy as possible documentary material in 2018. Personally, I don't believe artificial intelligence will soon lead to computers who are out to get us. But the Internet of Things certainly means they could make a mess of your home life, given room to roam and perform physical functions. And no amount of artificial intelligence will prevent every avocado I buy from going bad before I eat it.

In Iron Sky, it turns out Nazi astronauts live on the dark side of the moon. Enough said about that flick, then. As Nomura points out, everyone who has seen Transformers: Dark Side of the Moon knows that Decepticon transformers live there. So Iron Sky can't possibly be right about some World War II has-beens. They'd be German toast.

Shock 2: The "Amazonification" of inflation

Amazon.com (AMZN) is the least of it. China's largest e-commerce operator, Alibaba Group Holding (BABA) , had 168 billion yuan ($25.3 billion) in sales in 24 hours on Single's Day. That's for one site. On one day. Shoppers spent $13 billion on the five days on and surrounding Cyber Monday this year. That was for all retailers, for almost a week.

The Mercado Libre site operates in far more countries than Amazon, which is currently in 14 nations. Lazada in Southeast Asia has 8 million users and a potential market of 550 million people.

The Tencent (TCEHY)  apps WeChat and Weixin are used ubiquitously in China for everything from ordering food to hailing a cab, by almost one billion people (902 million daily active users as of November, and counting).

There are now more mobile phone subscriptions in the world than people. Around 16% of all retail sales in the United Kingdom are online, one of the highest rates in the world. It's 11% in the United States.

The point of this all is that e-commerce, online sales and the digitization of everything has eliminated all sorts of middlemen and driven down prices. The technological dampening of inflation is persistent and broad. Expect prices, then, to stay low.

Shock 3: 2% inflation targeting goes out of style

Japan is dreaming of hitting 2% inflation, and that's the holy grail for many a central banker. But having such a figure in mind is only a recent phenomenon and only recently widespread.

I've always wondered why we think inflation is a good thing. Prices get higher -- and it's only any good if it's accompanied by wage improvements. But recently, it has not been. The slow-but-steady rate of growth suggests dispensing with that 2% target would be a good idea.

Aging demographics and improving productivity also suggest constant inflation probably isn't a good thing. Inflation eats into any savings that those in their sunset years have accumulated. Time to let that 2% go. Rather 1%, Nomura suggests, would be more realistic. 

Shock 4: A United States of Europe

Britain be damned. The European Union may, in the wake of Brexit, find there's an even greater argument for a "United States of Europe," which would alleviate gripes over domestic politics and scrap quite a few costs.

Time to "fix the roof while the sun is shining," Nomura argues. The jobless rate across the eurozone has dropped from 11% in 2013 to 7.4% now, and only appears set to fall further. The previous low of 6.8% is likely on the cards over the course of the next 12 months. Maybe it's time in 2018 for politicians to make the most of the stable conditions to strengthen E.U. ties.

Shock 5: Another UK political turnaround

Maybe the grayest swan of these five is that the political turmoil currently roiling Westminster becomes bad enough that Theresa May calls another general election and/or finally argues for a second Brexit referendum.

Frankly, I think this is what May, who wanted Britain to remain in the European Union, has always been leaning toward. Draw the Brexit process out so long and make it so hellishly complex and, frankly, boring that the Brexit voters finally throw up their hands and say, "Whatever!" 

Theirs was a protest vote, and it's had its effect. I think immigration was the main scare factor for most of the rural and northern voters who voted in large numbers to leave. They are not affected by immigration, while Londoners who are voted to remain. But that didn't stop them. Around 75% of Britain's members of parliament are in favor of remaining. Wait long enough, and the will of the people, and the willpower of the Brexit voters, will waiver.

Which of those gray swans are we likeliest to see in all its splendour in 2018? I'll let you decide. I'm pretty sure we won't see Space Nazis invade earth next year, but all of the above are already on the horizon. Maybe 2018 is the year the swans come in to land.

Columnist Conversations

In GS I see key price support at the 224.49-226.42 area.  I also have timing for a possible low.  I ...
Tesla (TSLA) has tested our long-term bounce zone @ 283.90-258.95 a few times. These have been BUYING opportun...
We have a big winner here, let's roll it up to a higher strike   SOLD SRPT NOV 140 CALL AT 26 (in ...
We still like this name and want to give it more time. SOLD AAPL OCT 220 CALL AT 6.9 (in at 10) BOUGHT A...

BEST IDEAS

REAL MONEY'S BEST IDEAS

News Breaks

Powered by

COLUMNIST TWEETS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.