Black Swans Are Circling Mr. President. Are You Paying Attention?

If you’re not familiar with the term Black Swan here are a couple of definitions from Investopedia:

What Does Black Swan Mean?
An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult to predict. This term was popularized by Nassim Nicholas Taleb, a finance professor and former Wall Street trader.
 
Investopedia explains Black Swan
Black swan events are typically random and unexpected. For example, the previously successful hedge fund Long Term Capital Management (LTCM) was driven into the ground as a result of the ripple effect caused by the Russian government’s debt default. The Russian government’s default represents a black swan event because none of LTCM’s computer models could have predicted this event and its subsequent effects.
So, a Black Swan event is when something unanticipated occurs which has a tremendous impact on our lives; be that good or bad. The advent of the World Wide Web was a Black Swan event. The rise to power of Hitler was a Black Swan event. The current civil unrest in Egypt could potentially become a Black Swan event.
 
The Mad Hedge Fund Trader writing for OilPrice.Com thinks he see a number of Black Swans circling that could have devastating impacts on our economy. here is what he has to say:

Let me give you a list of things that can go wrong this year:

*The ten year Treasury bond spikes to 5% and money gets expensive. 

*Crude soars to $120 a barrel and gasoline rises to $4 a gallon.

*Europe blows up again, sending the dollar through the roof.

*Seeing stock prices soar, Ben Bernanke ends QE2 early, paring it down to QE 1 ½.

*The high frequency traders and quants hungry for a mean reversion smell blood in the water and trigger another “flash crash.”

*Retails investors conclude they were right to stay away and bail on what they have remaining.

I understand only some of what he is talking about. I assume it’s all scary stuff.

The problem with Black Swan events is that because they are by definition unanticipated it is impossible to plan for them. Yes, one can try to plan for certain contingencies but one can not plan for every contingency. Even in the case that the where the Mad Hedge Fund Trader thinks he sees Black Swans circling, he has no idea of when if ever they might land. It seems, therefore, that we plan based on what we know and allow for some contingency while being vigilant for an approach Black Swan.

I’m wonder if maybe I se some good Black Swans circling. I receive Todays Opinions of The Washington Post by E-mail every morning. Today I was surprised to see three out of nine opinions were negative to Obama. There is usually no more than one from a token conservative journalist. But today even Ruth Marcus took Obama to task in her opinion piece titled “From  President Obama, lots of talk, little leadership“.  She does a pretty fair job of ripping the President’s State of th Union speech. Here is how she raps-up her opMarkinion piece:

Into this disturbing vacuum of leadership come Virginia Democratic Sen. Warnend Georgia Republican Sen. Saxby Chambliss, who have assembled a bipartisan group pushing for tax reform and other deficit reduction this year.

When I spoke with them after the speech, they emphasized two points: that nothing would be accomplished without presidential involvement, and that it would be a mistake to let things slide into the election year or, inevitably, beyond.

“Every one of these painful choices gets harder every day we don’t do anything,” Warner said.

Wise words. If only we had heard more of that from the president himself.

How cool is that? A liberal journalist ripping Obama for his lack of leadership and reporting on a Democrat Senator’s efforts for a bipartisan solution to the problems that our country faces. If this turns out to be a trend, it really would be a Black Swan event. Unfortunately, like the Mad Hedge Fund Trader, I can’t tell when or if my good Black Swans will land. Sorry!

Are you paying attention, Mr. President?

14 thoughts on “Black Swans Are Circling Mr. President. Are You Paying Attention?

  1. If we look back at history, we see that those black swan events were foreseeable if we paid attention. How about this scenario: The newly unemployed Keith Olberman defeats Obama in the primaries and goes on to be elected president in 2012. Mexico hastily builds a border wall to keep out millions of Americans fleeing to their country. Now that’s a black swan.

  2. One of the things about liberalism is that their style of governance leaves them even more vulnerable to black swan events than any other type of government. I’ll give an example, our current socialist government has been running things into the toilet for a few years now, we’re deep in debt and then a black swan event struck.

    You may have heard of the flooding in Queensland recently, the damage toll is said to be around 6 to 15 billion. If the socialists had been careful with the surplus the previous Conservative government had left them, they could easily fund the recovery. But that’s not socialism, they squandered the money and now we’ve been told that there will be a new tax imposed on us to fund the reconstruction.

    The other thing is that their stupidity also invites black swan events, although clever minds could see them coming from a mile away. For example, the drunk spending in the US encourages bankruptcy and collapse down the line while liberals promise hand-on-heart that it won’t happen.

    1. Thanks, MK. Yours is a perfect example. And, I agree. Not everything we classify as Black Swans are Black Swans. The events were foreseeable and preventable; but our political elite put their heads in the sand or possibly some place darker and foul smelling.

  3. There is a real sense of foreboding in this country. People have become very suspicious. The immense financial collapse and banker fraud really kicked it off.

    This is what people know. You cannot fix something by covering it up. Our government has simply covered up a financial crisis and is creating a new one. I don’t think anyone has to know terms with precision to know things are screwed up. And when you neglect something that needs fixing…it comes back to get you.

    I think we are in the eye of the storm right now. I think we are going to pass thru the eye by summer. We are just a heartbeat away from collapse. That occurs as worldwide inflation contagion spreads and bond yields rise. Just two points. I believe a collapse could occur so quickly, that people will marvel and call it a black swan. It won’t be.

    1. You paint an ugly but accurate picture. I also agree that there has been a massive cover-up. Personally, I think politicians underestimate the American people. We can handle the truth. We can deal with it. But the politicians prefer to treat us as children and keep us in the dark. Then when the tsunami hits, we are not prepared.
      Great comment, Brian. Thanks.

  4. I think a black swan event will be when nations start pulling out of the EU. Just wait and see of this doesn’t happen and I’m not sure what the results would be for America.

    1. I don’t know, John, but I think that what you describe would be a good Black Swan. but either way it will/would be interesting. In my opinion the world wasn’t ready for a UN in 1945 and it still is not ready.

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