Wednesday, May 26, 2010

Black Swans Are NOT Everywhere

Black Swans Everywhere

Karen Gibbs, editor of the Gibbs Perspective, recently told attendees of The MoneyShow Las Vegas that Black Swan events aren’t as rare as they once were.

In 2007, Nassim Nicholas Taleb wrote The Black Swan: The Impact of the Highly Improbable. In it, he argues that most of the really big events in our world are rare and unpredictable.

Taleb lists three criteria for such an event: It must be a surprise to the observer; it must have a major impact, and [will be] eventually rationalized by hindsight as predictable.

By definition, black swans cannot be everywhere.

For example, several weeks ago I was watching TV and the screen froze. This surprised me. It had a major impact on my television viewing experience. I later rationalized it in hindsight as being predictable. I do use Comcast after all, lol.

That met Taleb's definition of a black swan event.

When my Internet and phone failed to respond last night and it was roughly the third time this month that service was out, it really did not surprise me much.

Once something becomes predictable, then it no longer qualifies as a black swan event.

The Greek economic crisis is yet another Black Swan event, although those studying the situation saw legal accounting sleight of hand mask the country’s profligate spending, cheap money and few, if any, financial controls.

No, it isn't. If those studying the situation could see it coming then it definitely was not a black swan event. They did not need to rationalize it later as being predictable. They were predicting it.

As long as governments engage in fiscal irresponsibility, [however,] the global economy will be buffeted by fear. To paraphrase Mr. Taleb, until governments can refute rumors, expect more black swans.

If fiscal irresponsibility leads to fear, then it should come as no great surprise to us that more fiscal irresponsibility will simply lead to more fear. How could this surprise us? We'd be predicting it.

About the only way our current situation could lead to a true black swan event would be if all this fiscal irresponsibility did not lead to more crises. What if it led us on a path to true prosperity and world peace instead? What if the "extend and pretend" policies really did work?

It would match all three of Taleb's conditions.

1. It would very much surprise all of us.
2. It would have a very positive impact on all of us and our well being.
3. It would no doubt be rationalized in hindsight as predictable.

I doubt very much we will get that black swan, but you never know. Perhaps Mr. Fusion is invented soon and it leads to a bright future world of unlimited cheap energy? It could happen. I'm just not betting on it, especially in the short-term.

If history is a guide, we can expect nuclear fusion to power our homes 40 years from now though. Why 40 years? It was 40 years away in the 1970s and it still probably is!

Editorial: Nuclear fusion must be worth the gamble

The old joke, that practical fusion is 40 years away and always will be, is no longer funny.

Party pooper! I still think it is funny.


Watchtower has pointed out in the comments that what we are seeing might be black crows, and not black swans. That makes a lot more sense to me, especially since they can be seen in great numbers.

As seen at
Wikipedia, "Crows, and especially ravens, often feature in European legends or mythology as portents or harbingers of doom or death, because of their dark plumage, unnerving calls, and tendency to eat carrion (including those of humans)."


watchtower said...

"Once something becomes predictable, then it no longer qualifies as a black swan event."

Maybe these black swans are actually...crows.

: )

Stagflationary Mark said...


Black crow events can be very popular! I think you are onto something there. :)

The Black Crowes: Jealous Again

Cheat the odds that made you
Brave to try to gamble at times
Well I feel like dirty laundry
Sending sickness on down the line

Illusion of Prosperity

Sending sickness on down the line since 2007, lol.

Stagflationary Mark said...

I have updated the post based on your observation. ;)

Stagflationary Mark said...


In 2004, it was my belief that the stock market would more than likely just trade sideways for a very long time, much like it did in the 1970s.

That's pretty much what it has done but the path has been very volatile.

I got into a debate back then on one message board about the market's ability to inflict maximum pain.

One poster felt that the maximum pain would be a 50% loss. I disagreed. I claimed that flat would inflict maximum pain to everyone involved, bull and bear alike.

Want pain? Here it is.

Inflation averages 5% but the market goes nowhere. It does this year after year.

1. The bulls can't make money because neither the stocks nor the underlying dividends keep up with inflation.

2. The bears can't make money either because the market never actually crashes.

Both are betting on a "dead money" asset as the inflation tape worm slowly consumes their net worth.

G.H. said...

"In 2004, it was my belief that the stock market would more than likely just trade sideways for a very long time, much like it did in the 1970s."

Today's close of SP500 puts it where it was in 1998.

Lost Decade + 2 = Pain++.

Pain++ (pronounced pain plus plus) is a general purpose way of extracting wealth from the broad economy (Pain) and funneling it into the hands of Wall Street through the payments of bonuses resulting in the progressive deterioration of future prosperity for the broad economy.

Stagflationary Mark said...


I can relate to Pain++.

I was a C++ programmer for many years. I very much enjoyed the language.

dearieme said...

This is the sort of news two crows portend:-

Stagflationary Mark said...


As a bird owner, a dog owner, and one with a girlfriend, that nearly brought a tear to my eye.

Powerful words and imagery there.