A list of possible Black Swans - Part 1
Foreword
Before I start, I will first like to say that this list will be a series of articles as I prefer making bite-sized posts (as much as possible, 5 minutes reads). There will be a total of 3 parts, the first part covers events that may take a longer time (years even decades) to play out. In the second part, I will be talking about events that might come sooner than you think. And finally in the last part, the events might have already happened and we are just waiting to see the potential fallout.
Black Swans
The term "Black Swan" is popularized by Nassim Nicholas Taleb, the writer of "The Black Swan" and a few other books on how randomness affects the market.
Source
Based on Wikipedia,
Black swan is a metaphor that describes an event that comes as a surprise, has a major effect, and is often inappropriately rationalized after the fact with the benefit of hindsight. The term is based on an ancient saying that presumed black swans did not exist – a saying that became reinterpreted to teach a different lesson after black swans were discovered in the wild.
It is important to note that black swan events is also about perspective. An event can be a black swan to me but not to you.
For example, if you have watched Netflix's "The Big Short", you will know that while the Subprime crisis came as a surprise to most of the world, there were still people who correctly anticipated it and profited from it.
In "The Black Swan" book itself, Nassim Nicholas Taleb used the analogy of a turkey and a turkey farmer. The turkey being fed everyday will never be able to imagine what when Thanksgiving Day is here, it will land on a plate. But to the turkey farmer, this is something that is expected. Hence, black swan events is about perspective.
A list of possible black swan events
Like most others, I am unable to predict black swan events. Here, I will only attempt to guess some events that might happen and potentially lead to detrimental effects on the financial markets. As I said, this is just part 1 and there will be 2 other parts.
Escalation of trade war
Source
Recently there has been news of trade deals between the USA and China. However, that does not mean that the trade war is over. The root cause of the trade war is ultimately a result of rivalry between the 2 great nations.
In the book "Destined for War", Graham Allison explored the concept of Thucydides's Trap. Thucydides believes that when 2 great powers clash, the likelihood of war is higher than not. We live in a world where China is a rising super power challenging the existing power of USA. For the world to not take the path of war, it will require both countries to compromise, especially for the existing super power to acknowledge that they may not be able to be the leader anymore. Is that a compromise which the USA is willing to take?
Without compromise, the rivalry may escalate. Starting with trade war, to currency war, to proxy/cold war, to minor conflict and finally all-out war. And when such conflict is escalated, the global financial market is sure to be destabilized. The trade war itself has dealt quite a substantial blow to some industries. Imagine a currency war where both countries aim to destabilize the other's currency.
Though the possibility seem slim, it is still a potential black swan event that might happen. I just hope it doesn't happen in my lifetime.
Climate change
One may argue that climate change is a known problem and should not be considered a black swan. I will counter argue that even though climate change is happening, the world does not seem to be doing enough to stop it.
Rising sea level, extreme weathers and more frequent natural disasters are all effects of climate change. However, the world seems to be tackling all these symptoms of climate change but not solving the root of the problem.
Source
In a recent report from the Intergovernmental Panel on Climate Change says we can expect the oceans to rise between 10 and 30 inches (26 to 77 centimeters) by 2100 with temperatures warming 1.5 °C. With more than 100 million people live within 1 meter (about 3 feet) of sea level that means that many of them will be displaced by if nothing is done by then.
In Singapore, the effects of climate change was brought up by Prime Minister Lee Hsien Loong as one of the existential threats to the country. Though it can be still decades away for us to see the impact, if nothing is done now, it might just be too late when the effects are seen.
When the effects of climate change are seen, there might be a global food shortage and land scarcity. Inevitably, this will lead to a squeeze in the economy and those countries that failed to plan will likely suffer the most.
Conclusion
As mentioned, black swan events are about perspective. So the more perspectives you are exposed to, the more you will be prepared for these rare events. In this article, I talked about the clash between a rising superpower and the existing superpower. In addition, I also covered climate change.
These events will take a long time to play out, however, the effects can be seen. We are tackling the isolated symptoms of these problems but not addressing the actual problems. If we do not start to plan for the ultimate consequences, that may only come after our lifetime, future generations will suffer.
P.S. If you like this post, have a look at part 2 as well. Thank you!
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Upvoted and resteemed @culgin
Thanks!
Very interesting. I did not fully understand the definition of "and is often inappropriately rationalized after the fact with the benefit of hindsight."
Hi @putu300, thanks for dropping by!
This simply means that when the event has happened and we look back, it may seem so obvious. People would tend to identify "obvious" signs that were present and ask why didn't they see it coming. However, the fact is, even if history was to repeat itself, those who did not see the event coming will still not be able to anticipate it.
Thanks for your explanation. NOw it's clear for me.👍
Hello dear @culgin, thanks for your interesting article.
I must confess that reading to you is very satisfying and educational, I really do not know about this Black Swan concept, it is very interesting to know it now.
On the other hand, regarding the climate change, it is an event that is under development and should not surprise anyone, only that there are many people, including governments, who are not paying attention and do not give it the importance it really has, in addition they are carried out From time to time the publicized climate change summits, agreements are signed that are often not fulfilled.
Thanks for sharing friend.
@fucho80
Hi @culgin
here is a great detail friend. and it is the union, in this way we can better face the climatic effects, I think that in one way or another from our square meter we must promote that union.
Now, with respect to the clashes of the superpowers, what I regret is that there are always two or three people at the most who promote those clashes and it is always the citizens who pay for the broken dishes.
Fully agree that everyone has a role to play on the environmental issues. Thanks for reading, @lanzjoseg!
@culgin, Climate Change is bigger issue than many think because it's affecting the whole environment and now we are seeing more dynamic Weather Patterns. Stay blessed.
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It is certainly a big problem. Thanks for dropping by!
Welcome and yes.
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There are times when I feel that we are inexorably heading for a disaster as a civilization, because climate change pressures on our food production and wars for subsistence resources are generated; that is because the established powers decide to eradicate or stop the growth of other rising powers, which would not be taken for granted and a conflict would erupt.
In spite of the terrible of these ideas, it is interesting to address them and go thinking that it could be done in these scenarios, of course, remembering that in the field of social sciences we will not have the certainty that there is in the old scientific disciplines of past centuries, but knowing that today's actions lead us to tomorrow...
Thanks for the comment. Indeed, history can sometimes serve as a guide. But we cannot wrongly assume that history is bound to repeat itself.
Dear @culgin
Interesting read. Upvoted already,
It's a great idea to break your post into parts. It surely will make it easier to go through.
I've seen The Big Short already and I found it so hillarious that they presented those few people (predicting property market crash) as a very unique and rare. I strongly believe that there were thousands of investors who knew exactly what to expect and the only ones surprissed to see crash coming were regular and final consumers.
In my opinion this movie is trying to show bankers and financial advisors as kind of "innocent". Not knowing what's about to happen. Which I do not believe at all. Anyway that was still interesting show to watch.
I quite like this example :)
Again thanks for solid post and interesting read.
Yours, Piotr
Hey buddy, thanks for popping by again! On whether bankers are "innocent", herd mentality and greed sometimes blind the majority, and on those occasions the winners are the minority.