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.
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?