We are sitting at risk level Orange in terms of a likely tail risk event, says Branton Kenton-Dau, Principal of Kenton-Dau's Tail Event Warning system. He asks: "Is the trigger for the next financial crisis a comet that is at this moment hurtling towards the sun at 70,000 kilometres an hour?" Surprising as it may seem, Kenton-Dau believes that spectacular comets events coincided with both the 2000 Tech-Wreck Crash and the 2008 Financial Crisis."
"Comets can impact the markets because in both cases we are dealing with electrical systems" says Kenton-Dau. Earlier in the year Kenton-Dau formulated a set of equations to enable investors to trade a market's electrical components. He says that the system is currently being evaluated by leading institutional and private investors in the Australasia region.
"Most of the 250 periodic comets, 280 non-periodic comets and 120 comet-like asteroids currently being tracked by astronomers have no impact on the markets," says Kenton-Dau. "What we are looking for is a combination of events to take place in space that creates a Molotov cocktail in space the consequences of which we experience as a financial crisis."
His theory believes that the first of these two conditions is timing. During its 11 or so year cycle the sun passes through periods of maximum and minimum electrical output. These, according to Kenton-Dau, appear to be periods of instability in the system. "The beginning of the 2000 Tech-Wreck Crash coincided with the last Solar Maximum while the 2008 Financial Crisis coincided with the most recent Solar Minimum. In August this year NASA announced a new Solar Maximum was likely during the next few months."
"However," says Kenton-Dau, "while the electrical system may be vulnerable at these times, something still has to short the circuit." He points out that July 1989 was also a Solar Maximum but there was no price collapse at that time. He suggests this may have been because there was no associated electrical event.
Comets may be one way we get a short circuit in space. "Comets are electrically charged objects, " says Kenton-Dau. "When they get in the way of a strong electrical field like the one that surrounds the sun, this may cause a major disruption to the electrical environment."
During the 2000 Solar Maximum, and coinciding with the start of the Tech-Wreck crash, just such an event took place, Kenton-Dau says, when Comet S4 Linear 'mysteriously' blew up as it approached the sun.
He writes: "Coincidence you may say, but in October 2007, during the last Solar Minimum and coinciding with the beginning of the General Financial Crisis, a similar event took place when Comet Holmes brightened unexpectedly to become briefly the most luminous object in the sky. Did that brightening take place as the comet passed through a high voltage current in space?"
At the time of writing Kenton-Dau says there is no reason to be concerned about the current Solar Maximum. However the risk of another volatility event may substantially increase if Comet ISON displays any of the abrupt fireworks of comets Linear and Holmes.
"Comet ISON is at its closet point to the sun on Thanksgiving day," says Kenton-Dau. "If we are to see a display it is likely to be around this time."
Branton Kenton-Dau was interviewed in last October's edition of Asia Pacific Intelligence. You can read that interview here.
This article was published in Opalesque's Asia Pacific Intelligence our monthly research update on alternative investments in the Asia-Pacific region.