{"id":110949,"date":"2017-08-15T10:27:48","date_gmt":"2017-08-15T14:27:48","guid":{"rendered":"http:\/\/countingpips.com\/?p=110949"},"modified":"2017-08-15T06:28:42","modified_gmt":"2017-08-15T10:28:42","slug":"the-blackest-of-swans","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2017\/08\/the-blackest-of-swans\/","title":{"rendered":"The Blackest of Swans"},"content":{"rendered":"<div id=\"inves-2356026634\" class=\"inves-below-title-posts inves-entity-placement\"><div id =\"posts_date_custom\"><div align=\"left\">August 15, 2017<\/div><hr style=\"border: none; border-bottom: 3px solid black;\">\r\n<\/div><\/div><p>By <a href=\"http:\/\/WallStreetDaily.com\/\"><u>WallStreetDaily.com<\/u><\/a> <img loading=\"lazy\" decoding=\"async\" class=\"attachment-home-th size-home-th wp-post-image\" style=\"display: block; margin-bottom: 5px; clear: both;\" src=\"https:\/\/s3.amazonaws.com\/wallstreetdailywebsite\/wp-content\/uploads\/2017\/08\/Bitcoin_feature.jpg\" sizes=\"auto, (max-width: 580px) 100vw, 580px\" srcset=\"https:\/\/s3.amazonaws.com\/wallstreetdailywebsite\/wp-content\/uploads\/2017\/08\/Bitcoin_feature.jpg 580w, https:\/\/s3.amazonaws.com\/wallstreetdailywebsite\/wp-content\/uploads\/2017\/08\/Bitcoin_feature-300x155.jpg 300w\" alt=\"Is Bitcoin a Black Swan? I emphatically answer in the affirmative! Here\u2019s why\u2026\" width=\"580\" height=\"300\" \/><\/p>\n<p><img decoding=\"async\" style=\"float: left; max-width: 85px;\" src=\"https:\/\/duip7hn7nchpo.cloudfront.net\/editor-circle-louis-basenese.jpg\" alt=\"Louis Basenese\" \/>In his groundbreaking book, <i>The Black Swan<\/i>, Nassim Nicholas Taleb defines a Black Swan as follows\u2026<\/p>\n<blockquote>\n<p class=\"blockquote\"><i>\u201cAn event, positive or negative, that is deemed improbable yet causes massive consequences.\u201d<\/i><\/p>\n<\/blockquote>\n<p>With that in mind, is Bitcoin a Black Swan?<\/p>\n<p>I emphatically answer in the affirmative! (Don\u2019t believe me? <a href=\"https:\/\/pro.agorafinancial.com\/m\/731788\"><b>Click here<\/b>.<\/a>)<\/p>\n<p>Now let\u2019s get even more granular.<\/p>\n<p>Taleb says that all Black Swans have three characteristics\u2026<\/p><div id=\"inves-3327270540\" class=\"inves-in-content inves-entity-placement\"><hr style=\"border: 1px solid #ddd;\">\r\n<div id=\"inpost_ads_header\">\r\n<p style=\"font-size:10px; float:left; color:#666;\">Free Reports:<\/p><\/div>\r\n<div id=\"inpost_ads\"> \r\n<p style=\"font-size:15px; float:left;\"><a href=\"https:\/\/goo.gl\/1ApBOV\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/investmacro.com\/wp-content\/uploads\/2018\/06\/graph_techs_PD.png\" align=\"left\" width=\"80\"  height=\"55\"\/><\/a>\r\n\t     <a href=\"https:\/\/goo.gl\/1ApBOV\"><b><u>Get Our Free Metatrader 4 Indicators<\/u><\/b><\/a> - Put Our Free MetaTrader 4 Custom Indicators on your charts when you join our Weekly Newsletter<\/p><br><br>\r\n<br>\r\n<br>\r\n<p style=\"font-size:15px; float:left;\"><a href=\"https:\/\/goo.gl\/f3RrHX\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/investmacro.com\/wp-content\/uploads\/2019\/01\/cot_pie_80.png\" align=\"left\" width=\"80\"  height=\"55\"\/><\/a>\r\n\t    <a href=\"https:\/\/goo.gl\/f3RrHX\"><b><u>Get our Weekly Commitment of Traders Reports<\/u><\/b><\/a> - See where the biggest traders (Hedge Funds and Commercial Hedgers) are positioned in the futures markets on a weekly basis.<\/p><br><br>\r\n<\/div>\r\n<hr style=\"border: 1px solid #ddd;\">\r\n<br><\/div>\n<blockquote>\n<p class=\"blockquote\"><i>#1 \u2014 \u201cBlacks Swans are outliers, as it lies outside the realm of regular expectations because nothing in the past can convincingly point to its possibility.\u201d<\/i><\/p>\n<\/blockquote>\n<p>I\u2019d say Bitcoin definitely satisfies this requirement. That is, unless you had gifted insights, and predicted a digital currency would emerge that operates beyond the control of any Central Bank and offers total anonymity.<\/p>\n<blockquote>\n<p class=\"blockquote\"><i>#2 \u2014 \u201cBlack Swans carry an extreme impact.\u201d<\/i><\/p>\n<\/blockquote>\n<p>It\u2019s impossible to consider any geopolitical event without also considering its impact on Bitcoin prices. So I\u2019d say we\u2019re good here.<\/p>\n<blockquote>\n<p class=\"blockquote\"><i>#3 \u2014 \u201cIn spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and unpredictable.\u201d<\/i><\/p>\n<\/blockquote>\n<p>Since pundits have tried to rationalize the price of Bitcoin every day since the most recent explosion, put a check next to this box, too.<\/p>\n<p>I believe it\u2019s official now\u2026<\/p>\n<p>Bitcoin is the biggest recent example of a Black Swan event, and such events can be infinitely profitable.<\/p>\n<p>For example, Bitcoin\u2019s success is spawning a brand-new cryptocurrency \u2014 one quietly about to launch.<\/p>\n<p>The prospects here are wildly bullish. For my full report on this upcoming ICO, <a href=\"https:\/\/pro.agorafinancial.com\/m\/731788\"><b>click here<\/b>.<\/a><\/p>\n<p>And Martin Hutchinson further unpacks Blacks Swans below.<\/p>\n<p>Ahead of the tape,<br \/>\n<a name=\"video\"><\/a><br \/>\nLouis Basenese<br \/>\nChief Investment Strategist, <em>Wall Street Daily<\/em><\/p>\n<p><script src=\"https:\/\/fast.wistia.com\/assets\/external\/E-v1.js\" async><\/script><\/p>\n<div class=\"wistia_responsive_padding\" style=\"padding: 56.88% 0 0 0; position: relative;\">\n<div class=\"wistia_responsive_wrapper\" style=\"height: 100%; left: 0; position: absolute; top: 0; width: 100%;\">\n<div class=\"wistia_embed wistia_async_80faqcwskd videoFoam=true\" style=\"height: 100%; width: 100%;\"><\/div>\n<\/div>\n<\/div>\n<p>Black Swans are a term invented by a writer and stockbroker called Nassim Nicholas Taleb. They are events that nobody had been expecting or thinking about \u2014 but which suddenly overwhelm the market.<\/p>\n<p>They\u2019re so-called because only a very few swans are black. In fact, the first black swan was discovered in 1697 in Western Australia. Before that, Europeans and Americans thought that all swans were white.<\/p>\n<p>Taleb postulates that there are more Black Swan events than we think, in other words, that the unexpected is not all that unlikely to happen. I would agree \u2014 and I would argue that this is because markets are not Gaussian and random walk. They have both hidden correlations, which you can handle with fuzzy logic\u2026 and fat tails, which you can handle with a Cauchy distribution.<\/p>\n<p>Black Swans or non-randomness is why Wall Street\u2019s risk management models don\u2019t work. And we saw in 2008, and we saw again with the London trade in 2012: The big Wall Street institutions relying on their models can often have huge unexpected losses simply because the models stop working when some Black Swan event happens.<\/p>\n<p>David Viniar, who was Chief Financial Officer of Goldman in August 2007, said that just as the crisis was emerging, \u201cWe are seeing 25 standard deviation events one day after another.\u201d Well, the reality is that if the market is anything like Gaussian, you should see less than one of the 25 standard deviation days in the history of the universe. Therefore, that proves pretty well that the market is not Gaussian and life is more complex than simple market models think.<\/p>\n<p>The real cause of Black Swans is herd behavior by traders and others such as Central Banks not seeing possibilities that are perfectly obvious to an outside observer \u2014 and therefore doing foolish things. The housing meltdown of 2007-2008 is perfect example of that. Everybody went on making risky home mortgage loans long after they should have done.<\/p>\n<p>Likewise, the London Whale trade of 2012 \u2014a Black Swan behavior of a portfolio of credit defaults swaps. These are particularly subject to Black Swan behavior for various technical reasons. It lost JPMorgan $12 billion.<\/p>\n<p>The New York Stock Exchange Black Monday stock market crash of 1987 \u2014 when the market dropped 21% in one day \u2014 was also a Black Swan. It was caused by programmed trading, which is a silly arbitrage strategy. One of the advantages of getting old is you remember examples that nobody else now remembers.<\/p>\n<p>The bottom line is that with the extreme monetary policies for the last decade, zero interest rates or even negative interest rates, Black Swan events are now quite likely.<\/p>\n<p>For the individual investor, there are two strategies.<\/p>\n<p>Firstly, you should protect yourself with gold and long-dated out-of-the-money S&amp;P 500 put options. The point of those options is if the market really crashes, you\u2019ll make money on them and that will give you money to reinvest at the bottom.<\/p>\n<p>Then second, obviously, see if you can spot a Black Swan coming. As a non-trader and a non-politician, this is where you have an advantage over the pros.<\/p>\n<p>You\u2019re not hearing conventional wisdom every day. If you think you\u2019ve seen a Black Swan, invest only a small amount \u2014 leveraged as much as possible. For example, out-of-the-money, long-dated calls or puts.<\/p>\n<p>As the movie, <i>The Big Short<\/i> showed, spotting a Black Swan could be painful. But it can also make you rich.<\/p>\n<p>Good investing,<\/p>\n<p>Martin Hutchinson<br \/>\nSenior Analyst, <i>Wall Street Daily<\/i><\/p>\n<p>The post <a href=\"https:\/\/www.wallstreetdaily.com\/2017\/08\/15\/blackest-swans\/\" rel=\"nofollow\">The Blackest of Swans<\/a> appeared first on <a href=\"https:\/\/www.wallstreetdaily.com\" rel=\"nofollow\">Wall Street Daily<\/a>.<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>By WallStreetDaily.com In his groundbreaking book, The Black Swan, Nassim Nicholas Taleb defines a Black Swan as follows\u2026 \u201cAn event, positive or negative, that is deemed improbable yet causes massive consequences.\u201d With that in mind, is Bitcoin a Black Swan? I emphatically answer in the affirmative! (Don\u2019t believe me? Click here.) Now let\u2019s get even [&hellip;]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-110949","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/110949","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=110949"}],"version-history":[{"count":2,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/110949\/revisions"}],"predecessor-version":[{"id":110961,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/110949\/revisions\/110961"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=110949"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=110949"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=110949"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}