Black Swan Events

I wanted to start a black swan thread because I am fascinated by black swans. What captivates me in particular is my complete and total failure ever to see them coming! Sure, I realize at the core of the entire black swan concept is their element of surprise. Nevertheless, consider:

A small number of people MUCH smarter than myself saw the 2008 crash coming . . . . and profited hugely.

I’m not looking to profit, something well beyond my ability. But it would be nice just to avoid unwanted and undesirable black swan consequences!

The 2008 crash was a black swan. This current pandemic likewise. Other stuff is “out there”, some potential black swans are more likely, others less:

A caldera blow at Yellowstone, for example: unlikely

A Carrington effect redux: more likely (just my opinion) and in fact there have been moderate reiterations since 1859

Oceanic meteor strike/massive tidal wave: who can say
Watch your elevation on that one, more is better.

Meteor strikes land, worldwide dust: who knows

The focus of this thread is NOT on black swans so severe that all life on earth perishes. Obviously those are not really a problem since we all die.

Instead, and especially from the standpoint of personal finance and quality of life, it’s the smaller black swans which can pose a practical dilemma.

How about, for example, the shifting magnetic poles? Or, much more down to earth, how about loss of the internet?

There is a good piece in Financier Worldwide which talks about black swans. Here a couple of pull quotes:

The term ‘black swan’ was popularised by Nassim Nicholas Taleb in his 2007 book “The Black Swan: The Impact of the Highly Improbable”, to describe large-scale random events that are impossible to predict, yet have huge impacts

When planning for the unexpected, there is clearly a line to be drawn. Some possibilities are just too remote to justify the expense in time, money and human resources, and at some point boards must assess the cost benefits of attempting to predict the unpredictable.

Link to Financier Worldwide black swan piece

One thing I sense strongly: the occurrence likelihood of a black swan of some sort during any interval of time increases as you enlarge the interval.

I’ve lived a decent number of years, but I nevertheless have trouble recalling black swans during the earlier years of my life. Probably I simply do not remember. I do recall the October 1987 stock market plunge. Am not sure it qualifies as a fully fledged black swan. Life moves faster today than once it did. This enhances possibility of events taking us by surprise.

Taleb, in his book, asserts our focus should not be so much on attempting to predict black swan events as it should instead be on arranging our affairs in a resilient manner able to weather unpredictable storms. I believe that is smart thinking, and I hope other forum members will share here their opinions on black swans. :smiley:

This is an automatically-generated Wiki post for this new topic. Any member can edit this post and use it as a summary of the topic’s highlights.

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Nassim predicted black swan events would continue to occur. I am most concerned about the solar minimum and effects of bursts of energy from the sun on our connected power grids and communication networks, when the quiet sun is over. That said, if Covid-19 takes 10% of humanity, the rest still have to eat. Keep investing and hope you made the right choices.

Exactly, booksleuth. That is the Carrington effect I mentioned. Back in 1859 all it did was to spark telegraph keys and shock some operators. Things are SO different now and mankind is SO much more vulnerable!

Thing is, Carrington would not kill most people . . . but it would make the pandemic appear by comparison a veritable picnic because virtually everyone would be impacted.

The market overall was a bubble… the Federal Reserve was having to lower interest rates, reverse unwinding its balance sheet, and interevene in the repo markets where interest rates were exploding to keep things from imploding. It wasn’t like everything was great before Coronavirus.

In my view Coronavirus was just the catalyst that popped the bubble. If we wouldn’t of had Coronavirus then something else would have eventually popped it.

It wasn’t like everything was great in the economy up until some black swan tail risk exogenous event came along and suddenly made things bad.

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By that logic the bubble is back, yes?

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I don’t consider COVID or the financial crisis of 2008 / 2009 to be Black Swans. They were both very predictable in their happening. Sure, the exact date was not known, but many experts in their fields gave us numerous “Heads up” that they were going to happen – just a matter of time.

Black Swans are things that are TOTALLY unexpected – something new and different.

Here’s a quote from Wiki that I hope they copied from him directly (I did not verify, but it sounds like his words…):

"What we call here a Black Swan (and capitalize it) is an event with the following three attributes.

First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme ‘impact’. Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable.

I stop and summarize the triplet: rarity, extreme ‘impact’, and retrospective (though not prospective) predictability. A small number of Black Swans explains almost everything in our world, from the success of ideas and religions, to the dynamics of historical events, to elements of our own personal lives. "

Clearly COVID and 2008 / 2009 do not meet his first criteria, since we had the Spanish Flu Pandemic and the Great Depression.

Fun topic, nonetheless. Thanks for starting it.

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Should we call COVID a Grey Swan?

Good one, DB. Perhaps we should!

OK, I have a few comments. First, on a personal note, plasma freaks me out. Label me unsophisticated but, plasma still freaks me out. And I am prompted to tell my one and only plasma story which, for plasma aficionados out there, will be 100% unsurprising. This is also a dog story which adds to the fun:

So it’s some time in the 1970’s. I was not living where I do now. I lived in a glen at that time, very beautiful, with an ever-flowing babbling brook right alongside my home. My dog lived outside in a heated dog house. His run was positioned so he could reach the brook. The dog did not run free. Instead there was a steel wire running from a corner of my house, and behind his dog house, out to a nearby large tree. A steel ring rode on that wire, with a nylon rope connecting the ring and my dog’s collar.

It was night and it was dark. I was asleep or nearly so. All of a sudden my dog commenced barking like crazy. He was going nuts. I jumped out of bed, ran to a bedroom window overlooking his area, and looked out. There was a sizable bright ball of light moving slowly along the aforementioned steel wire. I had never seen anything like it! I was startled and somewhat frightened. I ran for the headboard of my bed which contained switches for my front floodlights. By the time I threw those switches and returned to the window, that ball of light had disappeared. My dog was OK and not harmed, but I was mystified and a bit shaken up.

That was all well pre-internet. Today of course I know what I was witnessing back than was ball lightning . . . plasma. I never had encountered it prior and I never have had a personal experience with it since. And I don’t want to. I kind of think the nylon rope saved my dog. But who really knows? I do not.

Anyway, plasma generally does freak me out. And those huge plasma discharges from the sun, called CMEs (coronal mass ejections), ditto. For sure. I mean if a basketball-sized plasma ball got to me, I cannot conceive of an ejection that dwarfs the earth. It’s beyond my imagination!

All right, taking the long way 'round to getting back to DB’s posts.

I believe a Carrington event would be a black swan, even though we would probably have some warning, perhaps several days. So much plasma, so little time. How quickly can you build a Faraday cage? I mean, seriously! And that would only be for our personal possessions. A Faraday cage as big as your automobile? Get real.

So they tell us that in several days the entire electrical grid will go out, and remain down for months. What the hell are we supposed to do? It’s a black swan by my reckoning.

How am I supposed to access my money without electric power, and when my financial institutions also have no power? How am I supposed to feed myself when there is no refrigeration and no power for the range or microwave. If it’s winter, and it certainly could be winter, how am I supposed to keep my pipes from freezing up? It goes on and on. And this actually DID happen big time in 1859 and could occur again at any time.

Plasma sucks. I’m afraid of plasma, and I’m speaking from personal experience.

ETA

The 1859 Carrington event was the last really big one to hit our planet. But there have been at least two CMEs since then:

In 1989 a small CME blacked out Quebec.

In 2012 there was an enormous CME, but that one just missed us by about 2 weeks.

Don’t mess with the sun, baby. It’s a whole lot bigger than us.

A little off track…

Living in the country as we do. Our electricity goes out occasionally. We burn wood in the fireplace in the winter so we can stay warm. I have a gas cooking stove, so I can strike a match & get it going. So cooking food is workable. Where we live, not much worry about the water pipes freezing. For light I have my emergency lamp. But big problem with keeping meat & other foods cold with electricity gone.

Of course we have a problem if electricity is out for over a day or 2. Then we are up a creek…

When you first mentioned plasma. My mind went to blood plasma. So I was off track at first. But I loved the story of your dog. I think you were very lucky that the power up the line didn’t hurt him.

I have always had a dog or 2 around. So I have a bunch of dog stories.

17.6 hours for the plasma to reach earth for Carrington. I’m not sure if scientists can predict a CME in advance. We do have a bunch of telescopes monitoring the sun, there’s one at the Griffith Observatory in LA that everyone can see for themselves.

There are probably ways to prep for such an event. Shields (Faraday cages) plus surge protectors for all important electronics, and a backup power generator (solar or gas?). Maybe a shipping container could act as an all-in-one shelter, since it’s just a metal box. Shipping container homes is a cool idea.

We are moving from a free market to one where the Federal Reserve manipulates asset prices and directly buys bonds and other assets.

They have created trillions in new money so I would expect the market to keep going up due to asset inflation. I believe if the market starts going down they will start buying up stock ETFs next.

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Did they also predict 10 of the last two recessions :wink:

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I’ve been thinking about tiny homes/ Shipping container homes with a solar panel Not just for black swans but also a vacation retreat away from the heat here in PHX by going up in the high country

Q: Is buying land and just parking tiny homes/ Shipping container home with sewer/solar a good financial option too.

To me the saving grace in this pandemic, as would also be the case in other possible black swans, is land ownership.

It is a blessing for me, with all that is going on, to have a lot of land around me, be able to listen to the birds and watch the wildlife, and just generally “get away” from all the insanity. So I would say land ownership . . . as much as you are able to afford . . . is key.

The home is secondary and can always be improved upon, added to, over the years as you might see fit. But you need a solid base and that is your land, together with your well and septic. Those latter two you need regardless size of the home.

I drive a fifteen year old car (a Mercury, not a Rolls Royce) and live in a very modest home. What is “luxurious” about my lifestyle is that I own a decent sized piece of land. And let me tell you, I count my blessings every day and would not change a thing!

Buy your land. Choose your location very, very carefully and thoughtfully. Then starting with that build up as you go along and as you are able to afford. But always remember, your land will be at the base of everything that follows. Get it right: happy life. Get it wrong and you might someday be needing to hire Snake Plissken.

I think it’s very personal. What works for one person, may not work for all.

I own a house in two different countries but feel only minor attachment to either of them. I like my comfort when staying there. They’re a convenient base of operation that serve a purpose. But my ideal life would be to constantly travel to new places. Living on a boat could work for this once all the kids are out of the house. But tying myself to one piece of land when there are so many other pieces of land I’d like to visit seems rather counter-productive. Plus it’d seem to me like I’m putting all my eggs in one basket to attach myself to a single piece of land. If I’m unlucky and the black swan event dis-proportionally affects that area, then I’m toast?

So my own black swan strategy is flexibility and geographical diversification. :wink: Although that pandemic is testing it quite a bit. Fortunately, I can still travel a bit since I have two passports but I did not foresee how much it would limit my options.

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Agreed

Well seems to me, when this last black swan swooped in, a great many of the people most hurting were those engaged in one sort of travel activity or another.

I don’t think that having a good base necessarily has to curtail one’s travel. But when your base itself becomes the travel, or even just requires significant travel, in my view that could be a problematic strategy when the swan decides to alight without warning.

I have to go along with you shinobi. The freedom of living out of the bounds of noise & confusion. No one knocking on your door. Just privacy.

A friend of mine that lives in town in a very nice comfortable area was robbed recently. Her backyard entrance to her garage was not locked. A man walked into her yard, opened the garage & walked right in her kitchen. He asked her to give him everything he could carry out in his backpack. Of course she did. She was scared to death…
That wouldn’t happen to me, not because I live in the country, but my dogs would never have allowed the first entrance into the yard.

But furthermore all the folks here on Fragile Deal have lifestyles that are so very different.
I don’t travel so much now, but I used to love to be on the go all the time. But, it was always wonderful to get home & my quiet life.

Of course! It’s easy to use this as an argument against such predictions, but that’s the way predictions and preparation works!

Can we predict a hurricane to the year hitting NOLA? Of course not. Can we brainstorm that there may be one day and prepare for it? Yup. And we’ll likely sit on those preparations for a long long time. We’ll need to replace the supplies every so often because of decay.

And that is what folks like FEMA are supposed to do – prepare for things that often don’t occur or don’t occur in a near-term timeframe.

Same thing on the economic front. Even on the private front. Guys like Buffet sit on cash for years waiting for a buying opportunity.

We predict, we prepare, our predictions are often not realized and because we predicted and prepared we end up being better off that if we had not predicted or prepared.

I’ve always wanted to live in an RV. But I know I’d just find that “home base” you talk about, and rarely use the mobility. And that just seems pointless.