Rare Black Swan Sighting!!!

We’ve argued that in difficult times like these, people need to keep their heads and a sense of humor. Stuff happens. And sometimes that stuff – like the market meltdown of 2008-2009 – is scary and unexpected, or a ‘black swan’, as popularized by author Nassim Nicholas Taleb. Taleb’s invocation of a black swan is based on the idea that just because something hasn’t happened (or been seen) before, does not mean that it can’t happen (or does not exist). As currently described on Wikipedia:

The Black Swan theory (in Nassim Nicholas Taleb’s version) refers to a large-impact, hard-to-predict, and rare event beyond the realm of normal expectations. Unlike the philosophical "black swan problem", the "Black Swan" theory (capitalized) refers only to events of large consequence and their dominant role in history…

The term black swan comes from the assumption that ‘All swans are white’. In that context, a black swan was a metaphor for something that could not exist. The 17th Century discovery of black swans in Australia metamorphosed the term to connote that the perceived impossibility actually came to pass. Taleb notes that John Stuart Mill first used the black swan narrative to discuss falsification.

Well, way back in May 2008, a clever chartist with a sense of humor found the dreaded black swan lurking in a chart of the S&P 500. We’re coming across it a bit late, but it’s definitely worth a look: http://img208.imageshack.us/img208/8818/blackswanchartael4.png.

A detailed and nuanced analysis is available here.