Eric Roseman's Eruptions: Stocks, Global Markets and Commodities BLOG

Texas and the Dakotas Best Municipal Bond Bets amid Funding Crisis

Montreal, Canada.

It’s not a pretty site for state finances.

California, the world’s ninth-largest economy -- is bankrupt once again. The state issued its first batch of IOUs yesterday as its coffers ran dry. Though extreme, California is certainly not alone this year as many other states grapple with a bear market in revenues, rising unemployment and increasingly grow dependent on Washington to fund state and municipal operations.

States face a cumulative shortfall of $230 billion dollars from now until 2011 as revenues plunge since 2007. In 2009 alone, the cumulative budget gap for states is $121 billion dollars, according to the National Conference of State Legislatures. Thus far, 42 U.S. states have slashed enacted budgets to cope with rising demand for services and sharply declining revenues, according to the National Governors Association.

State and local sales-tax revenues fell more sharply in Q4 2008 than at any time over the past fifty years. For the first two months of 2009, 41 states that reported tax revenues saw total receipts fall 12.8% compared to 12 months ago.

Of the $787 billion dollars recently legislated by Congress to boost economic growth, about $246 billion has already been deployed to states. In early June, Treasury issued $25 billion dollars in bond authority available to state and local governments under the Recovery Zone Bonds program.

The bad news, however, is that all of this money is now in the process of being spent by states and by next year more government assistance will be required because state revenues are still declining. This has created a dangerous cycle of government interdependence for the most fiscally challenged states – including California, which by all intents and purposes is basically broke in 2009.

I don’t like buying or owning an investment that relies on government support. We all know the rules can change suddenly in uncertain times and depending on government to secure your retirement or long-term investment goals is the wrong way to invest.

If you own a bunch of municipal bonds then I would carefully review your portfolio to ensure the following:

• Is your state solvent without federal aid? You can obtain this information at your state’s budget survey online or at www.sunshinereview.org;

• If not, consider several top-rated national municipal bond funds as ranked by Morningstar to ensure proper diversification and risk allocation;

• Make sure your municipal bonds or bond funds are liquid. If you have to sell your bonds then ensure there’s no liquidity issue. You shouldn’t have to wait more than 24-hours;

• Limit your portfolio duration to a maximum of 5 years. Duration measures interest rate sensitivity. Though rates will stay low for the foreseeable future, make sure you don’t own long-term bonds with maturities extending beyond 2015;

• States with the best balance sheets include Texas and The Dakotas.

Despite the compelling tax savings, I’m very cautious about most municipal bonds because I’m in the camp this economic expansion will be sluggish for the next few years. Consumers are not spending, the unemployment rate is still rising (at 9.5%) and the housing market has not bottomed. This will NOT be a typical post-WW II expansion because bank credit is not expanding and borrowers are largely absent.

Texas is currently only one of six states not facing a budget deficit. The same goes for North and South Dakota and several others.

In Texas, state revenues are projected to decline 10.5% in 2009 compared to 2008, the state has apportioned some money for emergency funding or a Rainy Day Fund. The Rainy Day Fund was established in 1987 following a severe economic downturn and a sharp decline in oil and gas prices. The fund is expected to reach about $9.1 billion in assets by 2011.

Texas, of course, relies heavily on oil and gas revenues to boost its balance sheet. The state continues to benefit from strong oil prices – which have doubled since February – and will shortly receive $11.4 billion from Washington’s Economic Recovery and Reinvestment Act or the $787 billion dollar stimulus bill. That will further cushion Texas’s coffers.

I like the prospects for Texas longer term. That’s because I’m an oil and gas bull and believe she’ll continue to benefit from the trend in rising energy prices and Peak Oil, or a global phenomenon tied to declining oil production coupled by rising consumption mostly in the emerging markets. You could say Texas is in a “sweet spot.”

Also, Texas, though taking federal assistance – like all states – can live without it. The state is one of the few in the Union to balance its books.

If you must own municipal bonds to reduce your effective tax rate, then be especially careful now. These are not normal economic times. The wrong way to invest for the future is to depend on government to bail-out your state -- which means that in the absence of federal aid your state might possibly default on its debt. Though unlikely, this is a growing possibility in the post-2007 credit crisis.

I’m off next week to Spain for a summer break. I’ll be back blogging on Tuesday, July 14 from Tonsberg, Norway. Until then, Happy July 4th and Happy Canada Day!

Bear Market in U.S. Housing to Last Years

Montreal, Canada

The prospect for a quick residential real estate recovery continues to look dim in 2009 as the market struggles to wind down a 12-month supply glut.

Recent housing data point to a gradual improvement in some areas of the battered U.S. real estate market. To be sure, existing house sales have edged higher this spring and prices in some regions have begun to stabilize. But we’re still a long way off from a new bull market – probably years away as a lethal combination of rising unemployment, soaring foreclosures, ARM resets and a supply glut weigh on recovery prospects.

U.S. home prices eased their dizzy slide in April, according to the latest report by the Standard & Poor’s/Case-Shiller Index. Thirteen cities reported price gains in April as Dallas, Denver and Cleveland led the way with a 1% gain compared to a month earlier.

But the big picture for this index continues to look grim with home prices down 18% compared to 12 months ago and almost 33% off their all-time high in mid-2006.

Unlike previous bear markets in housing – most recently in the late 1980s – this recession is unique because of the extent of damage inflicted by a crash in credit, leveraged borrowing and domestic consumption since 2008. A sharp recovery is almost impossible over the next few years because employment trends remain dire and consumer confidence is near a multi-decade low; more importantly, there’s a huge overhang of unsold homes or too much inventory that will take years to wind down.

Probably the most worrisome short-term concern for residential housing is the surge in U.S. foreclosures recently coupled by a plunge in refinancing activity. The Fed’s ambitious plans to purchase up to $300 billion dollars’ worth of mortgage-backed securities since last November has failed to contain long-term fixed-rate mortgages this year. The recent spike in mortgage rates – though moderating since late June – remains elevated in a market that’s still lacking credit. Many jumbo mortgages are also being turned down as banks refrain from real estate lending in a declining market.

I’ve argued all along this year that we are in the midst of a long recovery process whereby credit markets are still largely dysfunctional and still dependent on Federal Reserve intervention to an extent. Interest rates are indeed super low but they’re also at these levels for a good reason. The demand for credit or funds is anemic and banks are still hoarding cash.

The stock market rally is now overdone because corporate earnings won’t recover beyond this fall, if at all. Basically, the government is providing a huge slop of short-term credit financing that’s ballooning asset values over the last three months. Worse, near zero percent interest rates is forcing depositors and other conservative investors back into the market because they’re desperate for yield. To interpret this economic recovery as a typical post-WW II expansion is dangerously futile. At some point over the next 6-12 months I suspect Mr. Market will need another injection of government stimulus and that’s when we’ll take-out the March 9 lows.

The majority of investors, traders and money-managers continue to underestimate a credit depression. Nobody alive has ever witnessed such a monster collapse of credit values. To believe that we’re on the road to riches again is just nonsense.

For now, the trend is your friend.

Homebuilders, Regional Banks and Transports Flashing Red

As the third quarter gets underway, U.S. stocks posted their best quarterly gains since Q4 1998 following the Long Term Capital Management crisis. June, however, did witness some important price divergences for several sectors of the market suggesting this bear market rally is nothing more than a dead-cat bounce since March 9.

As pointed out almost daily by my favorite market maven, Richard Russell (Dow Theory Letters), the divergence between the Dow Jones Industrials and the Dow Jones Transportation Average was confirmed earlier in May and has failed to solidify this post-March uptrend. The Transports have recently broken down below important support levels. According to Dow Theory, both averages must hit new highs in order to confirm a new bull market; that hasn’t been the case over the last few months as the Transports remain down 8.6% this year. Rails, trucks, shipping and airlines usually precede a bull market – yet that’s not occurring in this rally.

Another important indicator failing to sustain a rally is the regional banks.

While the largest banks have successfully raised more than $50 billion dollars since April to boost their still battered balance sheets, the smaller banks in the United States, including many regional banks, have topped-out. The smallest lenders have tumbled 26% since hitting a four-month high on May 8. Many smaller banks don’t have sufficient capital to feel confident enough to boost lending while many others have returned TARP funds because of government restrictions tied to borrowing capital.

Then you’ve got the homebuilders – one of the worst casualties of this credit crash. Homebuilding stocks posted huge gains off the March lows but have since tanked 26% since hitting their highest levels since last October on May 4.

Concern that mortgage rates, credit losses and foreclosures are increasing spurred retreats in the companies forecast to be among the biggest beneficiaries of $12.8 trillion dollars in government stimulus spending. Despite massive government injections into housing and tax incentives, you can’t force someone to buy a home or refinance if job losses are mounting and foreclosures are rising.

Inflation worries – which typically accompany a cyclical economic recovery – are premature at this stage. The United States and the global economy are mired in a deep contraction in demand; virtually no company has pricing power since last year and margins are mostly being improved through aggressive company cost-cutting.

Major inflation gauges like gold and TIPS have indeed climbed in 2009 but remain well below their March 2008 and July 2008 highs, respectively. This price action doesn’t suggest an inflation panic anytime soon. The same is true for Dow Transportation Average – a highly cyclical barometer.

Default Gambling: Markit Launches New Sovereign CDS Indices as Government Debt Levels Surge in 2009

Montreal, Canada

The explosion of global sovereign debt issuance since last year combined with a marked deterioration of public finances has fueled a new market for betting against governments bonds. And that’s great news for aggressive investors because before this credit unwinding is over several nations will default on their sovereign debt obligations.

The enormous weight of this financial crisis has caused severe damage to balance sheets in many regions but most notably in the United States, Western Europe and especially in the emerging markets of the Baltic Republics, the Balkans and Central Europe. The odds are high that one or more of these emerging market sovereign issuers will default over the next 12-18 months. Unlike the West these countries simply don’t have the capacity to spend their way out of economic misery.

The International Monetary Fund or IMF has already bailed-out several countries – Ukraine and Hungary among them – but it’s highly unlikely the lending agency can forestall every default once a major issuer in a region triggers a chain panic reaction. I’m convinced we’ll see a credit default in Central Europe before this credit unwinding is over.

Sophisticated investors can now place bets buying credit default swap indices (CDS) that speculate on sovereign government defaults in major and emerging markets following the creation of the first tradable indices tracking the risks of countries defaulting. Credit default swaps – chastised by George Soros – are used as insurance against a bond defaulting.

Markit, the service-provider, is launching four CDS indices today including the iTraxx SovX Western Europe Index and the Markit iTraxx CEE-MEA Index. The latter looks especially appealing because it includes Central European and Middle East countries – both regions that are vulnerable as debt financing bleeds them dry. The other two indices are based on a group of industrialized countries (G-7) and a diversified basket of credit default swaps speculating against issuers in Europe, Asia, Latin America, the Middle East, Africa and North America.

Another sector that extremely vulnerable to refinancing is the U.S. junk bond market. This asset class is now in a “bubble” following a 35% rally since March and a crash in credit spreads. The default rate, currently at 7% through May, is probably going to double before it bottoms in this economic cycle; I highly doubt investors have discounted a 14% or 15% default rate ahead of $950 billion dollars of refinancing coming due from now until 2014 for high-yield bonds.

In the next issue of The Sovereign Individual I’ll be betting against junk bonds with a fury.

This is not a normal economic cycle and credit deflation remains a central theme over the next few years as governments, companies and consumers alike struggle to raise capital.

Surging U.S. Savings Rate a Bad Omen for Stocks

On Friday, data confirmed the rising trend among Americans since Q4 2008.

For the first time in almost two decades, Americans are saving again and becoming frugal following a decade of reckless spending, massive debt accumulation and mortgage speculation.

The U.S. national savings rate as a percentage of disposable income rose to 6.9% in May compared to 5.6% in April and almost zero percent just 12 months ago. Though consumer sentiment has improved since March when fears of Great Depression II were becoming a possibility amid a market freefall, confidence remains well below its all-time high in January 2007.

Compared to other major economies in Europe, however, America’s savings rate is low.

In Germany, savings as a percentage of disposable income is at 11%. In Canada, America’s largest trading partner, the savings rate has risen to 12% recently. Clearly, the trend among consumers in the world’s largest economies is to sock away savings following a brutal decline in personal assets since 2007. And that’s bad news for domestic consumption and corporate earnings.

Historically, the relationship between a rising savings rate in the United States and corporate earnings has been poor. The last bout of rising consumer savings in the 1970s resulted in the second worst bear market for stocks (1973-1974) followed by volatile equity markets that basically ended the decade where they began; adjusted for soaring inflation, stocks finished the decade much lower.

The big difference between the boost in consumer savings since late 2008 and the 1970s is the monumental shift in interest rate deposits. Thirty years ago, a consumer could stash away cash at 12% or more; today, interest rates remain at their lowest levels since the 1950s prompting many savers to consider lunging after riskier strategies that yield more than just 0.5% or less in staid savings accounts. That’s what the market wants – more liquidity tired of earning near-zero percent interest.

Low rates will continue to attract more money from savings to riskier investments. But the trend is likely to be much more subdued compared to 2002, 1994, 1990 and 1982 when previous bear markets resulted in typical recoveries for financial markets. This is not a “typical” recovery; the unemployment rate is still rising (9.4%), housing markets have not stabilized and consumption is now largely in the hands of the government through fiscal spending. Finally, the expansion of bank credit in this cycle won’t be similar to previous post-WW II expansions. Banks are not lending.

With Americans finally turning thrifty again it’ll be interesting to see how meaningful corporate earnings can recover over the next six months. If consumers aren’t spending then it’s a pretty good bet that earnings expectations are too way optimistic.

Curious about China’s Dollar Sabre-Rattling

Montreal, Canada

In the absence of a major stock market decline or another financial institution blow-up this summer it’s probably a safe bet to start nibbling at foreign currencies again.

The U.S. Dollar Index (see enclosed chart) broke important support levels last month but is now oversold on a short-term basis. Any dollar rally at this stage of the economic cycle should be tepid at best. The economy is stuck in a de-leveraging process that will take a few years to unwind coupled by scant bank lending in an environment of cash hoarding. This is not a macro environment that will boost U.S. short-term interest rates any time soon.

The United States and probably China, to some extent, desire a weak American dollar to boost domestic inflation. U.S. CPI is still contracting and in May declined for the third straight month to its lowest level since 1955. A lower dollar helps to grow inflation – a desperate commodity right now.

This morning, China launched another currency salvo claiming the world should look “for alternatives to the U.S. dollar.” Such utterances won’t boost the buck but instead likely help facilitate a decline. Interesting how China would slam the dollar when she holds about 35% of all Treasury bonds in circulation.

On Tuesday, I began buying small positions for my managed accounts in Canadian dollars and Norwegian kroner. Gold remains 5% of my portfolio for now.

Though I remain cautious about commodities this summer, including oil and gold, I like the CAD and NOK currencies because of their relatively stronger balance sheets; Norway, in particular, smarts a 10.5% budget surplus-to-GDP ratio – the highest among industrialized nations. This compares to rapidly rising or skyrocketing budget deficits across the major economies since late 2007. And Canada, though now in budget deficit, sports a small deficit compared to its overall economy.

What about the euro? The single European currency is probably better than the dollar but not by much. I prefer gold, NOK and CAD.

Several peripheral euro-zone economies are now in deflation and major trading partners to the East are in desperate need of bank capital. I’m still predicting some sort of blow-up in the Baltic Republics or the Balkans this year. Any macroeconomic collapse in these regions will hit the euro and the emerging markets new “bubble” hard.

The precious metals should rally if the dollar continues to weaken. But, like I said earlier, I’m just “nibbling” at foreign currencies here to build fresh positions that are part of a long-term accumulation strategy for my dollar-based accounts. Any sell-off in risk-based assets this summer – highly likely ahead of earnings guidance and a 40% post-March rally – will drive the dollar higher. That’s when I’ll add to my existing foreign currency holdings.

Gold and silver, however, remains hostage to traditional summer weakness in the commodities complex; gold is especially vulnerable near-term because jewelry demand has collapsed and any outflows from gold-related ETFs will drive the price sharply lower. I’m looking to re-enter gold around $875 to $850 and silver around $14.

It strikes me as fascinating that China is denouncing the dollar again. Something is cooking in Beijing and Washington whereby policymakers probably welcome a weaker dollar.

This should be another very exciting summer marked by renewed volatility, especially in the currency markets, which have been largely range-bound for the last four weeks.

Have a good weekend. See you on Monday.

Next Chapter of Banking Crisis Unfolds as Credit Card Securitization Threatens to Unravel

Montreal, Canada

Credit card securitization is the new dirty phrase in mid-2009 as banks face an avalanche of bad loans tied to consumer loans that were aggressively sold to investors as individual securities prior to the credit crash almost 24 months ago.

Major U.S. banks are now coming to the rescue of their off-balance sheet vehicles tied to credit card securitization or investment products linked to consumer loans. This marks the next chapter of the ongoing financial crisis tied to the explosion of credit that started in August 2007.

Though the worst of the financial crisis appears to be behind us since March, the real economy remains mired in the worst contraction in GDP output since the 1930s. We’re still in the midst of a severe downturn marked by the lack of credit expansion, tepid consumer borrowing, rising unemployment, a housing bear market and a plunge in domestic consumption. Now the credit card world is starting to rip apart at the seams.

According to Moody’s Credit Card Index, losses on U.S. credit cards rose beyond 10% of total loans outstanding in May – a new high in the 20-year history of the benchmark and the sixth consecutive monthly decline. Banks, however, are not obliged to support these structured pools that are sold to investors; but in order to keep the market funded and creditworthy banks continue to pump the necessary capital into what appears to be a wave of growing losses.

Amazingly, like the Fed, which has purchased Treasury bonds and mortgage-backed securities since last November to keep rates down, some banks are buying back their own debt to maintain liquidity and transparency. This form of monetization or buying back bank-issued credit card securitization products can’t persist indefinitely if the market deteriorates further; the Fed can print money – banks can’t.

Since hitting a multi-decade low in early March the bank stocks have more than doubled. But since mid-June the sector is starting to waffle again as it breaches its 200-day and 50-day moving averages (see enclosed chart). Meanwhile, senior bank debt continues to rally over the last three months with credit spreads tightening markedly since May. This price action is not indicative of bank balance sheet stress or fears of renewed losses tied to credit card securitization; it does, however, imply that perhaps the market has already discounted a fresh wave of losses tied to credit card securities since banks have been warning about these impending losses for months.

Still, the market might have incorrectly discounted a modest level of credit card securitization defaults. The trend in this market in getting much worse as losses begin to exceed analysts’ expectations; the bank stocks, in my book, should be viewed like the stock market as one big trading opportunity whereby investors sell the higher end of the ranges and buy the steep declines. Bank balance sheets are still battered.

Maersk Warning Sheds Bearish Signal on Global Shipping

Denmark’s AP Moller-Maersk, the world’s largest bulk cargo shipping company, provided some important insight on the future direction of trade-flows on Tuesday. The news sheds bearish light on the absurd rally in the Baltic Dry Index and other industrial metals, including crude oil.

The Baltic Dry Index is a daily average of prices to ship raw materials. It represents the cost paid by an end customer or user to have a shipping company transport raw materials via ocean-crossing on the Baltic Exchange -- the global marketplace for brokering shipping contracts.

Maersk’s CEO said cargo volumes would drop by as much as 10% this year and will show no signs of growth in 2010. That statement defies the spectacular rise of the Baltic Dry Index since last winter following a stunning 97% crash last year.

Since hitting a multi-year low in December, the Baltic Dry Index has surged 484%; but since hitting its highest levels in 2009 earlier in June the index has declined 20%.

If Maerk’s CEO is warning of flat or zero volume growth over the next 18 months then it would seem logical to conclude that most commodities and other cyclical sectors of the marketplace have largely overextended their post-March rally. I could argue some commodities like copper and oil, for example, are in a mini-bubble.

Companies won’t be aggressively rebuilding inventories this year; the market has discounted any inventory accumulation and much more at this stage of the economic recovery, which will be extremely sluggish because of the enormous debt overhang still plaguing the world’s largest economy – the United States.

As for China and her great economic rebound, it would seem misguided to argue that she alone can salvage the world economy in 2009. The Chinese don’t aggressively accumulate commodity inventories amid high prices; rather, China builds her raw materials stockpiles when prices crash or decline.

The Baltic Dry Index appears to be forming another top. And judging my Maersk’s comments last night in Copenhagen, this rally is about to roll over.

Cashing in on Conventional Wisdom, Part II

From a credit perspective, the emerging market bond sector is the most compelling short speculation over the next few years. And Brazil, the largest debt issuer in the sector is now not only rated investment grade but also widely believed to be the next super economy this century as resource revenues continue to fatten its foreign exchange reserves and drive massive foreign direct inflows into Latin America’s largest economy.

Brazilian debt isn’t alone in “bubble” territory. Other credits in the region are expensive and many others in Eastern and Central Europe will probably default before the deepest economic recession in more than 75 years leaves them in ruins.

Is Brazil invulnerable economically? How about China, India or Russia?

It’s incredible to find credit spreads for emerging market bonds at just 430 basis points or 4.3% above Treasury bonds; prior to the big collapse in late 2007, the J.P. Morgan Emerging Market Bond Index saw its spreads collapse to barely 200 basis points over Treasury bonds before widening amid a credit crash in 2008.

About twenty years ago former U.S. Treasury Secretary, Nicholas Brady, launched a series of dollar denominated debt to help Latin America out of its economic malaise. Dubbed “Brady Bonds,” these instruments helped Brazil, Mexico and other countries out of the economic abyss. Can the same event repeat itself? Inflation went out of control in Latin America in the 1980s resulting in defaults, devaluations – you name it.

Now everything with an emerging markets bias is skyrocketing again – just like in 2006. This is especially true in South America – the best performing emerging market index since 2000 and up a stunning 43% in 2009.

Brazilian credit spreads have tumbled to 290 basis points (2.90%). Other regional economies have also seen spreads tighten, including Peru (260 basis points), Mexico (227 basis points) and Colombia (319 basis points). Argentina, which remains an economic pariah, is the lone black sheep with spreads at a whopping 36.9% above T-bonds.

I find it hard to believe that Brazil, yet alone Colombia and Peru deserve spreads under 400 basis points above Treasury bonds. It’s almost ridiculous. Basically, investors now believe that emerging market bonds are almost the same credit risk as Treasury debt or even German bunds.

At some point, eventually, emerging market bonds will witness an unprecedented crash. Whether this collapse lasts months or years is hard to forecast; but it does seem plausible that if commodities prices head sharply lower again or if China’s seemingly amazing economic rebound falters that spreads will surge overnight. Perhaps a sovereign debt default in Eastern Europe might spell the end of the boom. Herein lies the Black Swan.

If an asset class is invincible and almost impossible to bet against then the odds of making big bucks from a sudden reversal in the primary trend are spectacular. It’s only a matter of time until conventional wisdom is defeated in the emerging market bond sector. When that happens, I’ll be there.

Learn more in the upcoming issues of The Sovereign Individual and how to profit from one of the greatest speculations since the Great American real estate crash two years ago.

Cashing in on Conventional Wisdom (Part I)

How many investors shorted technology stocks in the late 1990s ahead of the bust in March 2000? Alternatively, how many speculators bet against bank stocks in 2007 ahead of the historical crash in financial services companies? And how many investors wagered residential real estate prices would collapse ahead of the peak in the summer of 2006?

Betting against conventional wisdom is a risky proposition. After all, investors generally feel more comfortable in a crowd buying the same assets that are appreciating; we’re conditioned to buy en masse and naturally feel comforted by a rising trend that enriches our bank account. Then the Piper comes calling like he always does when a speculative “bubble” finally draws to an ugly end.

As we shortly conclude the half-way mark in 2009 I’m asking myself where can an investor make money betting against conventional wisdom? In other words, which sectors are seemingly in a speculative “bubble” and absolutely accepted by the masses?

Since the market low on March 9 it’s almost like investors have completely forgotten about the financial crisis. Did it ever exist? Judging by market benchmark performance, mutual fund inflows and investor consensus, the good ole’ days are back.

One sector has gone “punch drunk” since March and deserves a closer look.

My favorite by far is betting against emerging market debt – the best performing fixed-income sector since 1992. Though it might be too early to wager against this booming asset class the payback will be spectacular once a Black Swan, or an unknown event, finally debases this formidable trend.

Over the last three years a host of emerging market economies have been the beneficiaries of credit rating upgrades by Moody’s, Fitch Ratings and Standard & Poor’s.

Only a decade ago many of these same countries were a basket case – including Russia, which defaulted on its foreign debt in 1998.

Driven by the bull market in raw materials this decade the emerging markets are now the flavor of the year as over 50% of stock market revenues in this sector are derived from natural resource exports – namely oil. Soaring commodities prices since 2002 have catapulted this asset class to the Big Leagues; this undeniable trend is confirmed by the famous acronym developed by Goldman Sachs earlier this decade – the BRICs or Brazil, Russia, India and China.

It almost takes an unlimited pool of capital or a lack of scruples to wager against the BRICs in 2009 – yet this Black Swan has a big payout should it materialize.