Black Swans

[Rebel Pirate]

The term Black Swan was popularized by Nassim Nicholas Taleb (NNT), a finance professor, writer, and former Wall Street trader. Taleb wrote about the idea of a Black Swan event in a 2007 book prior to the events of the 2008 financial crisis. Taleb argued that because Black Swan events are impossible to predict due to their extreme rarity yet have catastrophic consequences, it is important for people to always assume a Black Swan event is a possibility, whatever it may be, and to plan accordingly.

Taleb describes a Black Swan as an event that 1) is beyond normal expectations that is so rare that even the possibility that it might occur is unknown, 2) has a catastrophic impact when it does occur, and 3) is explained in hindsight as if it were actually predictable.

I hasten to add that the catastrophic nature of the event must be experienced by all of a society or at least a large portion of the population. I would also argue that for an event to be a true Black Swan it must precipitate some lasting change for society, in an attempt by society to protect itself from a recurrence.

I was chatting with some west coast friends last night and brought up the number of Black Swans we have seen in our life time. My list would include:
The Rodney King riots - a Black Swan mainly (only?) for the greater LA area (1992)
The terrorist attacks of 9/11 (2001)
The housing market collapse and ensuing financial meltdown (2008)
The COVID-19 pandemic (2020)

Would you add any others to the list?

[Boomer]

As Gutenberg was to the printed word, Samuel Morse was to trading.

Morse did not miss a beat—or should I say a key.

In 1837, Morse opened a telegraph demonstration on Wall Street. He charged 25 cents to see his invention.

Brokers were all over Morse’s newfangled machine.

Traders had been around for quite a while before then. In 1792 the Buttonwood Agreement was written by a group that had been trading securities under a Buttonwood tree on Wall Street. (Huh? I thought Buttonwood was a village in TV. I did not even know it was a tree. )

It might be interesting to look at the history of trading to see parallels with major events.

(Uh oh, my posts this morning are making me sound like I am giving homework assignments. I think I better find something else to do. :oops: )

Mrs. Boomer

[Rapscallion St Croix]

The blown pass interference call committed by the Rams against the Saints.

[Rebel Pirate]

The blown pass interference call committed by the Rams against the Saints.

Well, there you go...the world will never be the same! :a040:

[Rebel Pirate]

As Gutenberg was to the printed word, Samuel Morse was to trading.

Morse did not miss a beat—or should I say a key.

In 1837, Morse opened a telegraph demonstration on Wall Street. He charged 25 cents to see his invention.

Brokers were all over Morse’s newfangled machine.

Traders had been around for quite a while before then. In 1792 the Buttonwood Agreement was written by a group that had been trading securities under a Buttonwood tree on Wall Street. (Huh? I thought Buttonwood was a village in TV. I did not even know it was a tree. )

It might be interesting to look at the history of trading to see parallels with major events.

(Uh oh, my posts this morning are making me sound like I am giving homework assignments. I think I better find something else to do. :oops: )

Mrs. Boomer

My bad for not being more clear. I was curious if anyone believes there have been any other Black Swans during their lifetime? :popcorn:

[John_W]

I think the 1968 riots after M L King assassination was far more national than the Rodney King riots, those were mostly an LA thing.

[Rebel Pirate]

I think the 1968 riots after M L King assassination was far more national than the Rodney King riots, those were mostly an LA thing.

You're absolutely right...the MLK assassination riots were definitely more national.

But we are all individually - at least partly - the sum of our personal experiences. At the time of the riots following MLK assassination I was living in my (fairly small) home town that was little affected. On the other hand, I lived in LA during the Rodney King riots. I got to see that Black Swan up close and personal. And it did forever change my outlook regarding personal preparedness for unforeseen events.

[Luv2Bretired]

I think the 1968 riots after M L King assassination was far more national than the Rodney King riots, those were mostly an LA thing.

I agree. I was in the Maryland Army National Guard and we were called to active duty for about ten days at the Fifth Regiment Armory in downtown Baltimore. I could tell some stories about that experience but I will not.

Although it happened a couple years before I was born I would suggest the Japanese bombing of Pearl Harbor. Fortunately the A-bomb was developed and used ending the war before possibly millions more were killed in battle.

Kennedy’s assassination is another big one.

St Helena’s erupting, the Alaskan earthquake and AIDS come to mind as well.

[Boomer]

My bad for not being more clear. I was curious if anyone believes there have been any other Black Swans during their lifetime? :popcorn:


I know. But I could not help it. I am, alas, the Queen of the Segue when it comes to conversation. On TOTV. Or in person. :o

Your question just happened to start my wheels turning this morning. It caught my interest.

And, btw, I must sincerely compliment you for having a really classy way of telling me I jumped the track. :)

[Rebel Pirate]

I know. But I could not help it. I am, alas, the Queen of the Segue when it comes to conversation. On TOTV. Or in person. :o

Your question just happened to start my wheels turning this morning. It caught my interest.

And, btw, I must sincerely compliment you for having a really classy way of telling me I jumped the track. :)

Since NNT was a finance guy, he really focused on the financial nature of Black Swans. Even though I'm a finance guy as well, I tend to look at Black Swans more through the lens of the culture write large.

But, having said that I'm intrigued by your foresight regarding the 2008 meltdown. The only financial prognosticators I know of who was really beating the drums well before 2008, and was backing it up with insightful analysis, was Jim Jubak. I wish I could/would have listened!

But, I'm interested now in your financial/business forecast for the economy as we emerge from the great virus. Do you see a depression? I think the impact on the economy right now rivals the worst post-war recessions, and may rival the depression. The overall impact of course depends on how long this lasts.

If we're ready to emerge from our cocoons in another month it won't be that bad. If we get subsequent waves of the COVID monster and our lockdowns last a year...that could be real ugly.

Any predictions?

[Koapaka]

I would add both the fall of the USSR and the Fukushima nuclear plant event caused by the Tsunami to the list personally, but then I look at events from a retired military viewpoint.

[John_W]

I would add both the fall of the USSR and the Fukushima nuclear plant event caused by the Tsunami to the list personally, but then I look at events from a retired military viewpoint.

Did you see the HBO mini-series last year on Chernobyl, if not, it's a must see. Great job and it was scary.

https://static01.nyt.com/images/2020/03/14/opinion/14serge-chernobyl-1/14serge-chernobyl-1-mobileMasterAt3x.jpg

[Rebel Pirate]

I would add both the fall of the USSR and the Fukushima nuclear plant event caused by the Tsunami to the list personally, but then I look at events from a retired military viewpoint.

I share the same view point having spent 34 years in uniform. I absolutely agree with the implosion of the USSR! But the tsunami inundating the Fukushima nuclear reactor seemed to have little (no?) impact on the US except for short-lived concerns in the Pacific Northwest re radioactive waste and the global concerns for the efficacy of nuclear power generation, which seem to have been forgotten.

[Koapaka]

Must admit, Chernobyl slipped this old, feeble mind, and I would CERTAINLY agree that it rates....I think the thing about Fukushima was up until that incident, we all thought Nuclear Energy was safe...never realizing or imagining that forces of nature could change that on a dime. WE thought we had planned for EVERYTHING, realizing quickly we had forces we had not considered.

[Boomer]

Hello, again, Rebel Pirate,

Whoops.

You must have been writing your response just as I was editing out my comments on what I could not believe nobody else could see coming with 2008 — and my stuff about seeing 2019 as yet another house of cards.

Sometimes I like to talk about the market. I am nothing special. I am not a forecaster. I am not in finance or econ. But I sure could see 2008 coming. To this day, I still cannot comprehend the total lack of common sense that got us into that mess.

Remember drive-by appraisals and reeling in unqualified mortgages, to sell fast in the backdoor secondary market. The interest rate got so low that people were using their houses like uncorked piggy banks, borrowing up to the hilt, a lot of it for wants not needs.

How was it not obvious to anyone paying attention? Obvious answer, I guess, is that mostly nobody wanted to see it.

You asked if I had any predictions about where the economy will go. Of course not, nor would I pretend to. No market predictions possible — no matter how analytical some claim to be.

I have no idea what to think about the big economic picture — although I do have a couple of thoughts on what I think might happen with individual investors. But that is not really forecasting — just thinking about what could happen.

Small investors might be skittish for a long time and if they are investing, many will be more aware of building and maintaining a moat of cash around their stocks. But maybe not. We sure can be a nation of amnesiacs.

As far as the small investor goes, I think there could be more of a willingness to be responsible for learning about how to handle investments on their own. Some might take a good hard look and rethink paying advisors who get a percentage of the total investment, whether the market is up or down. Some will realize that nobody can know what is around the corner. Like Buffett said, “Beware of geeks bearing formulas.”

Owning boring, stodgy, individual stocks that pay a sustainable dividend might become more popular. Maybe investors will stop expecting a rocket ride and just be happy to find dividends that are paying them to wait.

But that is just my guess about the little picture.

Now, please bear with me while I throw in a little story that is analogous to how I see the big picture:

Hercules, a hero from Greek mythology, had to perform many tasks. One of those tasks was to slay the hydra.

The hydra had many heads so cutting off the heads seemed like the logical solution.

The problem was that every time Hercules cut off a head, two would grow back in its place. Two heads became four — four, eight. On and on it went. It took a while, but Hercules finally figured out what to do and killed the monster.

What we have on our hands now is a hydra-headed monster. Where is Hercules when we need him.

Boomer

[Skunky1]

My parents kept a substantial stash of non-perishable food once they recovered from the great depression

[Skunky1]

Natures way of paying us back for our greed and disrespect

[Westie Man]

The term Black Swan was popularized by Nassim Nicholas Taleb (NNT), a finance professor, writer, and former Wall Street trader. Taleb wrote about the idea of a Black Swan event in a 2007 book prior to the events of the 2008 financial crisis. Taleb argued that because Black Swan events are impossible to predict due to their extreme rarity yet have catastrophic consequences, it is important for people to always assume a Black Swan event is a possibility, whatever it may be, and to plan accordingly.

Taleb describes a Black Swan as an event that 1) is beyond normal expectations that is so rare that even the possibility that it might occur is unknown, 2) has a catastrophic impact when it does occur, and 3) is explained in hindsight as if it were actually predictable.

I hasten to add that the catastrophic nature of the event must be experienced by all of a society or at least a large portion of the population. I would also argue that for an event to be a true Black Swan it must precipitate some lasting change for society, in an attempt by society to protect itself from a recurrence.

I was chatting with some west coast friends last night and brought up the number of Black Swans we have seen in our life time. My list would include:
The Rodney King riots - a Black Swan mainly (only?) for the greater LA area (1992)
The terrorist attacks of 9/11 (2001)
The housing market collapse and ensuing financial meltdown (2008)
The COVID-19 pandemic (2020)

Would you add any others to the list?

Many race riots before RK, no black swan
WTC attacked in 93. 01 not a black swan
Resolution Trust Corporation dumping seized RE circa 92, 08 not a black swan
1918 influenza pandemic, COVID-19 not a black swan

[KayKay100]

So we have to cauterize the wound.

[toeser]

I don't have any old ones to add, but I have a future one. Our national debt, which is screaming higher, will precipitate a future black swan of massive proportions. Anyone who understands compounding and can work an Excel spreadsheet can easily see that we are heading into a financial no-man's-land. It qualifies as a black swan because absolutely no one can accurately predict the timing of the event or the exact nature of how it plays out, even though some of us expect it. The idea that our Fed can create money out of thin air with no limit will be proven to be wrong.

It's going to happen. My wish is that it occurs after my time.

[rickdankert]

1963 Kennedy assassination, 1968 MLK assassination, 1974 Arab oil embargo.

[Windguy]

My bad for not being more clear. I was curious if anyone believes there have been any other Black Swans during their lifetime? :popcorn:

You were very clear. For me, maybe Sputnik?

[huange@verizon.net]

I would argue that the 2008 financial collapse was predictable created by banks and loan companies giving credit to borrowers with poor or no credit worthiness.

[Rapscallion St Croix]

How about an expected event that ultimately did not occur? I wonder if my brother and his wife ever road those bicycles they bought because their car was not going to be operational.

Y2K

[John_W]

1969, the NY Mets and the NY Jets both win a championship at Shea Stadium, and unfortunately they were against the Baltimore Orioles and Baltimore Colts.

[NFRicaS]

I agree. I was in the Maryland Army National Guard and we were called to active duty for about ten days at the Fifth Regiment Armory in downtown Baltimore. I could tell some stories about that experience but I will not.

Although it happened a couple years before I was born I would suggest the Japanese bombing of Pearl Harbor. Fortunately the A-bomb was developed and used ending the war before possibly millions more were killed in battle.

Kennedy’s assassination is another big one.

St Helena’s erupting, the Alaskan earthquake and AIDS come to mind as well.
Interesting article I read mentioned that the bombs did not end the war, that Russia’s attack on Japan did...Japan used the bombs as a way to save face...

[caseycasebeer]

Sounds like an interesting article, do you recall the source?

[davem4616]

The term Black Swan was popularized by Nassim Nicholas Taleb (NNT), a finance professor, writer, and former Wall Street trader. Taleb wrote about the idea of a Black Swan event in a 2007 book prior to the events of the 2008 financial crisis. Taleb argued that because Black Swan events are impossible to predict due to their extreme rarity yet have catastrophic consequences, it is important for people to always assume a Black Swan event is a possibility, whatever it may be, and to plan accordingly.

Taleb describes a Black Swan as an event that 1) is beyond normal expectations that is so rare that even the possibility that it might occur is unknown, 2) has a catastrophic impact when it does occur, and 3) is explained in hindsight as if it were actually predictable.

I hasten to add that the catastrophic nature of the event must be experienced by all of a society or at least a large portion of the population. I would also argue that for an event to be a true Black Swan it must precipitate some lasting change for society, in an attempt by society to protect itself from a recurrence.

I was chatting with some west coast friends last night and brought up the number of Black Swans we have seen in our life time. My list would include:
The Rodney King riots - a Black Swan mainly (only?) for the greater LA area (1992)
The terrorist attacks of 9/11 (2001)
The housing market collapse and ensuing financial meltdown (2008)
The COVID-19 pandemic (2020)

Would you add any others to the list?


I would add Pearl Harbor 12/7/1941...

now, I'm not intending to be a wise guy....however many times when we've traveled to Europe and visited botanical gardens, low and behold what do we see "black swans" swimming in the pools....I never knew that they actually existed

[Fenster]

Thank you for your post. Interesting.

[Rebel Pirate]

Natures way of paying us back for our greed and disrespect

Skunky, sorry but I don't follow. What is natures way of paying us back for...?

[Rebel Pirate]

So we have to cauterize the wound.

KayKay, I'm sorry...what wound do we need to cauterize?

[Rebel Pirate]

I don't have any old ones to add, but I have a future one. Our national debt, which is screaming higher, will precipitate a future black swan of massive proportions. Anyone who understands compounding and can work an Excel spreadsheet can easily see that we are heading into a financial no-man's-land. It qualifies as a black swan because absolutely no one can accurately predict the timing of the event or the exact nature of how it plays out, even though some of us expect it. The idea that our Fed can create money out of thin air with no limit will be proven to be wrong.

It's going to happen. My wish is that it occurs after my time.

Toeser, I couldn't agree any more! In fact, I've made similar statements in cocktail party conversation (to a collective ho-hum yawn) but have also engaged in lengthy conversations on the topic with some individuals who I respect as future thinkers. I'm convinced it won't happen in our lifetimes, but it MUST happen...sooner or later.

David Stockman was Director of OMB under Reagan and had a road-show presentation he would give to anyone who would listen. An important piece of his story was that sooner or later, we would get to the point where the entitlements portion of the federal budget consumes the entire federal budget. Then, to use a sailing term, we're in irons. There's no good way out. The only ways out are to reduce or eliminate some entitlements and/or to increase taxes and the budget to the point where both are onerous and anathema to a free market economy.

In the old days, certain factions of our national discussion (the budget hawks) were fiscal conservatives and were consistent in their approach to taxes and spending. That's changed. You can't find many true fiscal conservatives anymore because it's difficult (read almost impossible) to be elected to national office on a fiscal conservative platform.

Sooner or later, all the deficits will come home to roost. Right now with the COVID crisis, we're adding trillions to the national debt. We're headed downhill and picking up speed. When the budget and economy eventually crash it will be discussed as one of the most destructive Black Swans of all time. But some of us see it coming.

Danger Will Robinson!

[Rebel Pirate]

You were very clear. For me, maybe Sputnik?

Sputnik certainly grabbed not only the national attention, but I believe it was the principal factor that drove JFK to adopt his vision of the country putting a man on the moon before the decade was out. If that be the case, it was a Black Swan that certainly led indirectly to great outcomes for USA.

[Rebel Pirate]

I would add Pearl Harbor 12/7/1941...

now, I'm not intending to be a wise guy....however many times when we've traveled to Europe and visited botanical gardens, low and behold what do we see "black swans" swimming in the pools....I never knew that they actually existed

Neither did I! But, that's the background for the term Black Swans. If you've never seen a Black Swan you may inappropriately conclude that they don't/can't exist. And in the case of the reality behind the metaphor, they actually DO exist! Who woulda thunk it?!

[tophcfa]

I don't have any old ones to add, but I have a future one. Our national debt, which is screaming higher, will precipitate a future black swan of massive proportions. Anyone who understands compounding and can work an Excel spreadsheet can easily see that we are heading into a financial no-man's-land. It qualifies as a black swan because absolutely no one can accurately predict the timing of the event or the exact nature of how it plays out, even though some of us expect it. The idea that our Fed can create money out of thin air with no limit will be proven to be wrong.

It's going to happen. My wish is that it occurs after my time.

I totally agree with the above post. This will ultimately be the undoing of the USA as a great nation. Fiscal responsibility by our Government (both parties) is a distant memory.

[jimjamuser]

That is possible. Japan was sort of winning its fight with Russia. Then they decided to do Pearl Harbor because they were confident. It would have been hard for Russia to fight that 2 front war? I am not a history expert, but it is an interesting topic. Bomb or Russia?