Thursday, May 19 2022

News of the Omicron variant has over the last two weeks courted chaos in markets as prices have moved to account for the prospect of further economic closures. Even so, there was no broader financial meltdown.

Omicron was a shock, but it wasn’t a total shock. This is because most investment professionals had factored the possibility of a new and disruptive variant derailing the global recovery firmly into their world view.

As the late former US secretary of defence, Donald Rumsfeld, might have dubbed it, Omicron was a known unknown coming to light. Something we know we do not know. In this case the known was the risk of a new variant; the unknown how bad it would be or when it might emerge. For the most part that meant the risk could, at least to a certain degree, be modelled and accounted, for sparing markets the worst turmoil.

Far more concerning for markets is the concept of unknown unknowns — another Rumsfeldian classification. These are things we haven’t even imagined happening. “If one looks throughout the history of our country and other free countries, it is the latter category that tend to be the difficult ones,” Rumsfeld famously opined on the matter.

Today’s known knowns and known unknowns include the continuing fallout from the Covid pandemic. They also include harder to define risks like a potential Western confrontation with either China or Russia. But none of these have the potential to jilt markets the way a major unknown unknown suddenly becoming a known unknown has.

What’s curious, then, is the degree to which markets have thus far ignored what is becoming the transformation of one of the greatest unknown unknowns of all time into a known unknown.

We are, of course, talking about the growing seriousness with which both Pentagon officials and Congress have starting taking the phenomenon of so-called Unidentified Aerial Phenomena (UAP) — more colloquially known as UFOs.

For markets, the important thing about these developments is the increasingly fervent admissions by high-level security officials that while the phenomena are real, they remain unexplainable even to the most sophisticated militaries in the world.

The slow and steady release of official military footage of UAPs started earlier this year when the Navy unclassified three videos taken in 2014 and 2015 appearing to showing the phenomena in action.

In the footage, also confirmed by accompanying telemetric data, strange objects are seen moving in ways that defy the laws of physics and gravity.

Testimonies confirming the phenomena have also been put forward by eye-witnesses such as retired navy commander David Fravor, who had previously told New York Magazine in December 2019 that what he saw was “behaving in ways that aren’t physically normal”.

On the even more fantastic spectrum, Haim Eshed, a former brigadier general in Israeli Military Intelligence and a professor of aeronautics and astronautics, told Israel’s Yediot Aharonot paper in December 2020 that the US and Israeli governments had been in contact with extraterrestrial life for years. This is something Nasa has de facto countered by noting it is not yet aware of extra-terrestrial life.

More disclosures were anticipated later this year, but failed to materialise in any significant way as expected.

Congress-led disclosure

UAP hunters may have been thrown a bone this week.

The text of a new defence bill, set to pass Congress, revealed the establishment of an office specifically to address UAPs. It is set to replace the Navy’s pre-existing UAP Task Force, with a view to centralising the reporting of such incidents from across the entire military complex, while also establishing timely and consistent reporting procedures. The office will also focus on assessing the threat level of UAP sightings to the United States. Most notably, the act will also require regular sharing of this information with appropriate congressional committees — ending the decades-long reporting blackout on the topic to elected officials.

So what are the consequences for markets?

Award-winning investigative journalist and author of “In Plain Sight” Ross Coulthart has been investigating what officials really know about UAPs for years. One of the biggest concerns among those in the know, he says, was the potential economic impact on markets if the scale of uncertainty surrounding UAPs in the military became known. “Everyone talks about a potential for a massive collapse in the world economy if this revelation is not handled properly,” he told the FT Alphaville.

This applies whether the technologies are human or non-human, since both scenarios are highly disruptive.

If they are human made, and our own military doesn’t know about them, this implies someone somewhere is in possession of technology that makes nuclear weapons look like child’s play, says Coulthard. That realisation alone has the capacity to destabilise the global power balance and economies as well as markets with it.

If the technologies are not human . . . this invites the even more significant question of whether those in possession of the tech are hostile or friendly.

Both possibilities carry major repercussions for markets and humanity.

On the friendly front, the opportunity to benefit from superior technologies and knowledge sharing, such as the chance to obtain zero-gravity or “free energy” systems, would be tantamount to a global wealth injection. But it could also court chaos by rendering existing fossil fuel assets even more stranded than they already are.

On the hostile front, the worst case scenario doesn’t bear thinking.

Though, as economist Paul Krugman once quipped, there could be a silver lining if efforts to defend humanity from a foreign alien invasion threat led to unseen levels of global collaboration and fast-tracked investment in defence technologies. He even joked it might be worth conducting a hoax to draw such effects in their own right.

At a minimum, any serious revelation of a potentially hostile alien threat would put other existential threats we are facing in somewhat of a different context.

It’s worth noting there is at least one Wall Street product actively accounting for these risks: note the risk disclosure in the Procure Space ETF prospectus (H/T Ross Coulthart):

Effective immediately, the following disclosure is added to the Fund’s Prospectus under

“Additional Risks” and to the Fund’s SAI under “Investment Strategies and Risks”:
Unidentified Aerial Phenomena (“UAP”) Risk

A UAP, formerly known as an “unidentified flying object” or “UFO”, is a flying object that looks or moves unlike any known aircraft used by the US or any foreign country. Recently, the US military has acknowledged the existence of UAPs and confirmed the authenticity of certain videos and images purporting to show UAPs. Given that currently there is no identification of these observed phenomena, it is possible that UAPs could create unintentional or deliberate operational, data security, “cyber” and other interference with the operation of satellites and other objects in space.

Such activities could result in a significant adverse impact on the Fund’s securities, thereby causing the Fund’s investment in such portfolio securities to lose value and adversely affecting the Fund’s ability to fulfill its investment objectives.

The UAP portfolio risk is out there.


Citi Private Bank Law Firm Group and Hildebrandt Consulting Issue 2022 Citi Hildebrandt Client Advisory | Business


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