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Attacked By Waves the Size of 10-Story Buildings

By Tom Dyson, publisher, The Palm Beach Letter
Friday, March 9, 2007

The Queen Elizabeth II is the famous luxury cruise liner operated by Cunard Lines.

On September 11, 1995, the QEII was crossing the North Atlantic, heading for New York, when she was caught up in huge seas from Hurricane Luis.

At 4 a.m., a wave broke the windows of the Grand Lounge, nearly 70 feet above sea level. Then at 4:10 a.m., the captain spotted a huge wave coming right at the ship... as high as the ship's bridge... 100 feet above sea level.

The wave broke over the bow with enormous force and sent a huge shudder through the ship. Two smaller shudders followed as the ship fell into the "hole" behind the wave and was hit by a second monster wave a few seconds later.

This second wave was 90-feet high and swept away the ship's forward whistle mast.

No one was injured and the QEII completed her journey to New York.

In 2001, two large tourist cruisers had their bridge windows smashed by 10-story waves in the South Atlantic... in the same week. One of the ships was left without propulsion for two hours.

Prompted by these frequent occurrences, the European Space Agency decided to research these monster waves and monitored the surface of the world's oceans for three weeks using satellites. What it found amazed even the most gin-soaked old seadog: It spotted 10 different waves at least 80-feet high.

The waves exist "in higher numbers than anyone expected," said Wolfgang Rosenthal, senior scientist with the GKSS Research Centre in Geesthacht, Germany, who pored over the data.

The ESA goes on to claim "severe weather has sunk more than 200 supertankers and container ships exceeding 200 meters in length during the last two decades. Rogue waves are believed to be the major cause in many such cases." Reports from the Norwegian and British shipping industry suggest that rogue waves sink one supertanker or freighter every year.

Here's the thing: The wave models that offshore engineers have used for decades say that rogue waves – like the ones which hit the QEII – are physically impossible.

"They can compute big waves, but not ones that rise – as rogue waves do – three to five times as high as the waves around them and seem to come out of nowhere, out of sync with the rest of the sea," says Discover Magazine. "The U.S. Coast Guard considers rogue waves so rare that it doesn't even keep records of their occurrence. Yet maritime records are filled with stories of fishermen and sailors who claim to have been struck by them."

Ocean waves are about the closest natural phenomenon we have to the stock market. You get rogue waves in the stock market too – like the 29% crash on Black Monday 1987 or the 23% two-day crash in 1929.

Stock market mathematicians from the 1960s and 1970s would have said these 'rogue waves' were impossible. For instance, if stock returns followed a normal distribution, Black Mondays would only occur something like once every 100 quindecillion years.

The point of all this is rogue waves in the stock market are much more common than most people expect. I can't say for sure whether or not a monstrous storm is on tap. But given the lack of volatility in the stock market for the past three years and the fact that the Dow dropped 500 points the other day, you may want to make sure your portfolio can withstand a big wave.

Good investing,


Market Notes


Burried under the news of China's roller-coaster stock market: The country produced more passenger cars in 2006 than the U.S. did.

Now the world's workshop, China is sure to go through wild investment cycles as it grows up economically. It's also sure to produce big investment returns for companies that sell China the cement, copper, bauxite, oil, and timber it needs to build cities and factories. You can see this theory at work in today's chart of Ivanhoe Mines (IVN).

Put together by master mining promoter Robert Friedland, Ivanhoe controls the giant Oyu Tolgoi project, one of the world's largest deposits of copper and gold, located in Mongolia. News that mining giant Rio Tinto will help develop the deposit has helped send IVN stock soaring since October.

Sure, everything related to China is way overheated right now... but we'll have to agree with Friedland's outlook on China and commodities: "It's a one-way bet that China will use more copper..."

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