Avoiding a Black Swan in 2015

Many investors are familiar with the oft-quoted line from Warren Buffet that “when the tide goes out, you find out who is swimming naked”.

In general, this quote is used to describe what is presumed to happen when “liquidity” leaves markets but we wonder whether it is the tide of “prices” that is going out at present. Although it is the fall in the oil price that is dominating the headlines, we should also note that tin, iron ore, copper, rubber, palm oil, timber and milk powder prices (amongst others) have each fallen heavily over the last year – and particularly over the last few weeks.

Potentially more importantly, though, it is not only commodity prices that are falling at present; we also find that many countries’ finished goods export prices are also deflating at present. Specifically, many Western and Asian producers have reported that the selling prices of finished consumer goods are also falling and, as a result, we have not, so far at least, witnessed the types of terms of trade improvement within economies of the world’s oil importers that we might usually have expected to see when oil prices have fallen.

As a result, business confidence in these economies has remained decidedly modest despite the supposed “boost” of lower energy prices.