Capitalogix

A Look at Black Swan Market Risks - Or Not

Have you noticed that people keep using the term "Selfie" to describe tons of pictures that aren't selfies?

Same with "Spoiler Alert" ... People use the term to mean a variety of things now ... few of which are actually spoiler alerts.

There is something similar happening in the financial world. People have latched on to the term "Black Swan".

Here is an example. 

Wall Street was up for the sixth straight week, despite the oil rout.

What could go wrong?  What are the "potential Black Swan events"?

To annswer, Société Générale releases a quarterly chart  of "Black Swan" risks. 

The most recent example is below.

 

 via BusinessInsider.

The concept of a "Black Swan" event takes its name from Nassim Taleb's 2007 book "The Black Swan."

But there's a slight problem with the chart above: acknowledging an event's possibility means it can't be a Black Swan.

The chart suggests that further deterioration in the economic situation in Europe poses a risk to the market. However, a "Black Swan" is an event or occurrence — a tail event, as Nassim Taleb would call it — that is so remote that it is completely unforeseen. 

In his book, Taleb uses the Thanksgiving turkey as an example.

"Consider a turkey that is fed every day," Taleb writes. "Every single feeding will firm up the bird's belief that it is the general rule of life to be fed every day by friendly members of the human race 'looking out for its best interests,' as a politician would say.

"On the afternoon of the Wednesday before Thanksgiving, something unexpected will happen to the turkey. It will incur a revision of belief."

Here's what it looks like in chart form. 

 

 

This is basically the book's entire message wrapped up in one graphic. 

"Consider that [the turkey's] feeling of safety reached its maximum when the risk was at the highest!" Taleb writes.

"But the problem is even more general than that; it strikes at the nature of empirical knowledge itself. Something has worked in the past, until — well, it unexpectedly no longer does, and what we have learned from the past turns out to be at best irrelevant or false, at worst viciously misleading."

And this is really what the problem of Black Swans is all about. 

It isn't that we can't know the future, but that we delude ourselves into thinking we can ... making forecasts about events that are inherently unforecastable and giving us false belief about what can (or will, or might) happen in the future. 

When a Black Swan event occurs, it seems outside what had previously seemed possible.

However, Taleb suggests, the event only seems outside previous beliefs about what was possible because of how we arrived at those possibilities ... by using the past to forecast the future.

Here Are Some Links For Your Weekend Reading

Here are some of the posts that caught my eye. Hope you find something interesting.

 

Lighter Links:

• The 25 Best Inventions of 2014. (Time)
• Peter Thiel's Very Negative - And Very Useful - Advice For Entrepreneurs. (Fortune)
• Google Glass Failed, but Here’s the Path Its Successors Will Take. (MIT TReview)
• Why Do People Believe in Conspiracy Theories? (Scientific American)
• Will NFL Broadcasts Ever Embrace Advanced Stats? Sabermetrics changed pro baseball. Now comes football. (MMQB)

 

Trading Links:

• The Science Behind Casino Profits. (The Week)
• Facebook 'Newspaper' Spells Trouble For Media. (BusinessInsider)
• U.S. Economy: Four Indicators Paint Very Negative Picture. (Business2Community)
• USPS Takes on FedEx and UPS with 7-day Delivery This Holiday Season. (B2C)
• Black Friday Online Sales Up 8.5% Over Last Year, 20% Of Sales Came From iOS. (TechCrunch)

A Thought for Thanksgiving

Be Thankful

Be thankful that you don’t already have everything you desire.
If you did, what would there be to look forward to?

Be thankful when you don’t know something,
for it gives you the opportunity to learn.

Be thankful for the difficult times.
During those times you grow.

Be thankful for your limitations,
because they give you opportunities for improvement.

Be thankful for each new challenge,
because it will build your strength and character.

Be thankful for your mistakes.
They will teach you valuable lessons.

Be thankful when you’re tired and weary,
because it means you’ve made a difference.

It’s easy to be thankful for the good things.
A life of rich fulfillment comes to those who
are also thankful for the setbacks.

Gratitude can turn a negative into a positive.
Find a way to be thankful for your troubles,
and they can become your blessings.

~Author Unknown

 

Best wishes for a happy holiday season with family and friends.

Here Are Some Links For Your Weekend Reading

Turkeys don't often have happy Thanksgivings ...

 

 

Here are some of the posts that caught my eye. Hope you find something interesting.

 

Lighter Links:

• Are You Doing The Wrong Things Right - or the Right Things Poorly? (Forbes)
• Will Artificial Intelligence Destroy Humanity? Here are 5 reasons not to worry. (Vox)
• A Manifesto for Playing God with Human Evolution. (New Scientist)
• The Divorce-Proof Marriage. (The Atlantic)
• This Website Will Tell You Which Stores Have the iPhone 6 in Stock. (Time)

 

Trading Links:

• Inside The 2014 Forbes 400: Facts And Figures About America's Wealthiest. (Forbes)
• Raising Capital: The Advice Andreessen Horowitz Gives Its Founders. (A16z)
• CyberCriminals Eye Financial Markets for a Better Return On Investment. (FT)
• Banks Agree Not to Blow Each Other Up Too Quickly. (Bloomberg View)
• Images Showing How Surprisingly Small One Year's Worth of Mined Commodities Is. (BusinessInsider)

Surviving Our HealthCare System

I'm very thankful for the quality of our medical care and the state of medical technology.

Many news cycles talk about ObamaCare and how our medical system is broken. However, I had surgery last week, I was impressed with the process and the outcome.

I'm still a baby, after all these years. I didn't want to get surgery.

 

 

I put it off as long as I could.  I don't like needles ... and I didn't like the idea of diminished capabilities, potential loss of strength or feeling (or dozens of other excuses).

I had something called a "trigger finger". What that means is that if I shut my hand, my left index finger wouldn't reopen. It was painful and inconvenient.

For what it is worth, I remember some distant uncle who had a finger like that when I was young.  I remember, because when I would shake hands with him, one of his fingers was tickling my palm ... It felt like a secret handshake.

Fixing it was easier than I expected; I was at the hospital, for the actual surgery, for less time than it would take to see a movie.

On one hand, it was relatively minor surgery. On the other hand, see for yourself.

 

 

Pretty cool, actually. I'm already using the hand to open doors, hold my phone, and wash my hair.

As bad as things may be regarding the state of our healthcare system, it is still pretty awesome. Kind of like Democracy. Perhaps it sucks a little; but it is still a good bet to beat the alternatives.

Here Are Some Links For Your Weekend Reading

We just landed a spacecraft on a comet for the first time.

One reason you should care is that Space Mining will be big business in the near future.

Here are other reasons why it matters.

 

 

Here are some of the posts that caught my eye. Hope you find something interesting.

 

Lighter Links:

• The Science Behind Jeff Bezos’ Pizza Rule. (Business Insider)
• Why People Love Costco-Sized Portions. (The Atlantic)
• 7 Practical Life Lessons from Albert Einstein. (Lifehack)
• People Really Do Look Like Their Dogs, And Here's Why. (HuffingtonPost)
• Malware Traffic Could Forewarn of International Conflicts. (MIT Technology Review)

 

Trading Links:

• “Internet of Things” Will Become Multi-Trillion-Dollar Market by 2020. (Infoworld)
• US Financial Industry Launches Platform To Thwart Cyber-Attacks . (FT)
• Meet The PayPal Mafia, The Richest Group Of Men In Silicon Valley. (BusinessInsider)
• Organized Crime Pays. (Vice)
• This Man's Job: Make Bill Gates Richer. The Secretive Money Manager Helping Gates' Fortune Balloon to $82 Billion (Wall Street Journal)

Facebook Is Now Bigger Than IBM

I just saw something that made me look twice ... Facebook is now bigger than IBM.

This represents a a major changing of the technology guard for corporate America.

 

 

 

 

via Quartz

 

Facebook’s market value has surpassed a number of the icons of American industry, including Verizon, AT&T, Coca-Cola, Walt Disney, Bank of America and Citigroup.

 

Surprising?

Time-Lapse Maps That Show How Fast and Much the World Has Changed

Human have a huge impact on the landscape. 

For example, take a look at Dubai in Google's Earth Engine.  It is easy to see the incredible coastal expansion.

 

 

 

We are literally terra-forming the planet.

The Earth Engine brings together trillions of scientific measurements dating back over 40 years (based on Landsat satellite imagery).

You can explore some of these time-lapse maps here.

Seasons of the Economic Cycle

Just re-looked at this chart depicting the four seasons of our basic economic cycle. 

 

Pretty clear where we are. 

 

 

LPL Mid-Year Outlook via Josh Brown.

 

I like maps (like this one) because they help you anticipate, rather than simply react to what happens. 

Carrot: A Pitch-Perfect Satire of the Tech Industry

This comedy short parodies the type of announcements made by seemingly every start-up in America.

 

It is not hawking a watch or a pair of glasses .... Rather, it is pitching the edible root:

"It's not just a vegetable. It's what a vegetable should be."

 

Well done and funny.  Worth a quick view.

 

 

 

via Introducing Carrot.