Dec

24

These are some of the events that I've concluded qualify as some of the "Black Swan" events of 2014:

1. In a final pique with the US over its Iranian policy, its Syrian policy, and its Egyptian policy, Saudi Arabia announces cuts in production of 80%, sending the price of Brent up to 130. This precipitates a crash in the markets, a reversal of Spanish and Italian stabilization, and an accelerated contraction in the French economy. Christine Lagrande announces her candidacy for the Presidency of France in the face of massive demonstrations in Paris by students who looking at an umemployment rate of nearly 40% when they leave school as Hollande's approval ratings drop below those of Obama. After 6 months, the Saudis relent and return production to pre-reduction levels, but the EU has already settled into a recession.

2. India announces a ban on ownership of gold, leading to panic in the gold markets. Bitcoin prices stage a temporary rally to $1500 as investors try to find someplace "safe" to store money realized from sales of gold and out of the government's reach. An earthquake is felt in the vicinity of Jim Dines' grave (well, that one is pretty speculative, I grant you).

3. Results of five epidemiology studies suggest that drinking coffee is a cause of erectile dysfunction. Spot coffee prices go limp (sorry, couldn't resist) as Jim Rogers appears on every CNBC show proclaiming it to be a buying opportunity of the century. Dunkin Donuts and Starbucks both announce the addition to their menus of different tea varieties and drink.

4. Reports of massive corruption in Nigeria trigger a coup d'etat, with nationalization of mineral resources. China voices concern over the security of its mineral purchases in Africa and announces an across the board stockpiling of commodities. The yuan is pressured even as commodity markets show more life than during the previous 5 years.

5. The nation's university graduate schools face a wave of unionization following the success of such efforts at NYU. The presidents of the University of California, the University of Texas, the University of Michigan, and the University of Pennsylvania announce that unionization of their school's graduate students will push tuitions up to unacceptable levels and leave the middle class impoverished paying for college. Tuitions increases of 10% for 2014-2015 are announced.

6. The Mets win the NL pennant. The Orioles win the World Series. (Tim Melvin is pretty sure this one's a lock.)

7. A breakdown in the HVAC system at Goldman Sachs HQ in the early spring during a multi-week heat wave leads to management to allow (temporarily) employees to "dress down" and not wear ties or suits. Three days after this new, temporary dress code is put into place, the rest of Wall Street does likewise and men's clothing stores throughout NYC begin to close as a result of the decline in business.

8. TheStreet.com is purchased by News Corp as an effort to diversify its holdings in electronic media.

9. Delta Airlines announces that beginning in 2015, all lavatories on domestic flights will require electronic payment of $0.40. In the face of consumer uproar, Delta announce that the new fees will allow it to lower airfares, which it never does. Airline stocks rally at the news.

Just some possibilities. Be on the lookout for them.

Peter Andre writes:

None of these are "Black Swan" events. Coup d'etats, market volatility, sports victories, and research outcomes may be unlikely or surprising, but they are not - as a "Black Swan" episode requires - unknown unknowns which are computationally intractable and later forced into a narrative which suggests future predictability.

Using only the first example: so long as, say, oil option prices in the wings (50 puts, 150 calls) are not only traded in some volume but priced and repriced according to news, even if erroneously, the likelihood of a price move for any reason carries some degree of computability; there are always bulls and bears in a market, and thus a price drop (or spike) does not lie outside the realm of expectation, albeit on the fringes. But if North Korea, Switzerland, or Australian researchers were to suddenly announce and demonstrate their invention of a cheap and broadly applicable energy source which in several years would render oil, gasoline, etc. obsolete, sending the price of oil to $5, with the pits eventually being closed and massive political instability taking hold across the Middle East, yes: that would be a Black Swan event.


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