Recent discussion of a trade war breaking out has left the financial press and popular analysts calling for a potential “black swan” in the financial markets.
What’s the problem? There is no such thing as an event that is currently being predicted that could possibly be a “black swan” event.
According to an October 23, 2015 Dough.com article by M. Slabinski, a black swan event is:
“A Black Swan event, or Black Swan theory, is a term popularized by the writer Nassim Nicholas Taleb. He wrote a book titled, ‘Black Swan: The Impact of the Highly Improbable’ that explains Black Swan events as having three qualities, ‘rarity, extreme impact, and retrospective (though not prospective) predictability.’
“’What Nassim Taleb is referencing are events like the invention of the steam engine or computers, effects of natural disasters like the Fukushima crisis, financial crashes such as 1987 Black Monday, 2000 dotcom bubble, and 2008 mortgage crisis, and cultural phenomena like the success of Harry Potter.
“He says that these types of events do not occur often, are not predictable ahead of time (though explainable after the fact)…”
Why is it so difficult for named analysts and established financial press to understand what a person like Slabinski manages to nail down about what a black swan event is? The mere injection of the word “black swan” event in the discussion of the tariffs in an interview on CNBC has spawned articles that proclaim that the tariffs could in fact become a black swan event. This is not the case as the CNBC stammered and stuttered through the definition of a black swan event. Unfortunately, the named analyst didn’t emphasize the distinction between what is and isn’t a black swan event and then move on to his “concerns” almost legitimizes the misconception of what a black swan event is and how to deal with such and occurrence.
This more than likely goes straight to the heart of another important consideration that Taleb calls the “Intellectual Yet Idiot (IYI).” The IYI crowd appears to be on the opposite end of the spectrum of those who have “F**k You Money (FYM).” The IYI will attempt to hold their superior level of influence over those that lap up their “wisdom” while saying anything necessary to ensure that their followers will come back for more. The FYM crowd could care less about what you think and more importantly, will tell you what you need to know while not depending on a following to fawn and fund their future endeavors.
In closing, black swan events are not in our sphere of competency. Therefore, whenever someone attempts to claim that a black swan event is on the horizon you will do yourself a service by ignoring the claim and possibly ignoring the source unless the claim is made after the fact.
Nassim Nicolas Taleb, the former derivatives trader and NYU professor, recently completed his four volume book INCERTO, A Philosophical Essay on Uncertainty.
