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Pessimists May Have Last Laugh in 2016

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Pessimists May Have Last Laugh in 2016

We are only less than three weeks into the 2016 calendar year, but there is already one clear theme that is emerging: the global economy is experiencing serious difficulties. Fear and uncertainty abounds like A Nightmare on Elm Street.

Just like a horror movie, the carnage with respect to finances has been entirely predictable.

Pessimism Reigns Supreme

black swan. Source: Daily Mail (U.K.) Source: Daily Mail (U.K.)

There's a name for an unexpected event that shocks the markets and thereby ruins everything for investors: a "Black Swan."

Black Swans are the Achilles' heel for anyone invested in the markets. Just before the New Year, a group of economic experts shared their notions about the worst possible Black Swan events that could befall the international financial system in 2016.

We've chosen some of the most convincing and plausible scenarios below.

 

Israel vs. Iran Nuclear Program

iranThe planet's biggest rivalry between two States always seems to be on the verge of erupting into bedlam. What if 2016 is the year? Economic interests would suffer greatly as much of the world is drawn into a war between Iran and Israel. This would undoubtedly shake up the precarious balance of power in the region, too.

 

Recovery for Crude Oil

Another scenario (related to the previous one) that would certainly shock the world markets would be a swift rise in the price of crude oil. Right now, oil is trading below $30 a barrel. Imagine the mayhem if OPEC once again was in control of the oil market and prices returned to $100 a barrel.

"Brexit" Comes to Fruition

UK-downMany in Britain have been campaigning for pulling the country out of the European Union (E.U.), and this might even be brought to a vote in 2016. If the United Kingdom (U.K.) actually leaves the union, it would weaken the E.U.'s economy while also causing many major companies to flee British soil. It could be the death of the euro.

Major Cybersecurity Breach

HFT-programWe've already seen several devastating cyber attacks on major U.S. companies and bank account holders in the U.K. during the last two years. What if the next attack hits where it really hurts? Any number of the West's enemies—ISIS, Russia, North Korea, Iran, even China—could team up to coordinate a more powerful breach of cybersecurity, affecting everything from bank accounts to power grids.

Anti-immigration Sentiment Engulfs E.U.

EU breakup (photo from The Telegraph) Photo from U.K. Telegraph

There's been an enormous influx of refugees from Syria and elsewhere around the Middle East into Europe through the European Union's open borders. As a result, nationalist groups have surged in popularity across the continent (including the U.K.). German Chancellor Angela Merkel made bold statements about how refugees would help the economy; conversely, the E.U.'s economy could be thrown into turmoil in 2016, costing Ms. Merkel her job.

Chinese Economy Falters

Green numbers indicate losses in the Chinese stock market.What about China? We hear repeated warnings about the imminent decline of the world's second-largest economy, and these fears seem to be coming true. Two worrisome outcomes could result: the rest of the world economy would be dragged lower by China, while the People's Republic could resort to greatly expanding its military in order to quell dissent from other countries and from within.

Putin vs. America and the West

What if the ongoing feud between Russia and its Western rivals reaches a high point in 2016? The Russian leader Vladimir Putin has been vocal about his intentions to undermine America's goals but has thus far made only subtle moves in this direction. With Europe considering removing sanctions on Russia and President Obama in his final year in office, an embarrassing ordeal where Putin outmaneuvers the commander-in-chief wouldn't be surprising.

Conditions Get Even Worse for Latin America

From Mexico to the southern tip of South America, the past 8 years or so have been awful for the economies of Latin America. Recession has struck two of the largest powers in the region (Brazil and Argentina) while crime and scandal have also caused uproar in Brazil and Mexico. Until or unless certain commodities recover, these vulnerable countries will be pushed closer to the brink in 2016.

 

In reality, any one of the above "Black Swan" scenarios would stir sufficient panic to help gold prices.

You can find more of these potential "Black Swan" events in Bloomberg's "Pessimist's Guide to 2016" on Bloomberg.com.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.

About the Author

Everett Millman

Everett Millman

Analyst, Commodities and Finance
Managing Editor

Everett has been the head content writer and market analyst at Gainesville Coins since 2013. He has a background in History and is deeply interested in how gold and silver have historically fit into the financial system.

In addition to blogging, Everett's work has been featured in CoinWeek, Advisor Perspectives, Wealth Management, Activist Post, and has been referenced by the Washington Post.

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