“The inability to predict outliers implies the inability to predict the course of history”
― Nassim Nicholas Taleb, The Black Swan: The Impact of the Highly Improbable
What is a Black Swan Event?
A black swan is a metaphor for a rare, unpredictable and often catastrophic event. According to Britannica, all swans are presumed to be white, therefore a black swan would describe an impossible occurence. But when a Dutch explorer encountered dark swans in Australia back in the 17th century, “the black swan thus came to be a metaphor for the reality that just because something has not happened does not mean that it cannot occur in the future.”[1]
A Black Swan “event” is most often applied to the financial markets and was popularized by Nassim Nicholas Taleb in his book The Black Swan: The Impact of the Highly Improbable. Taleb warns about the ramifications of ignoring “outlier” events that while uncommon and unlikely — have a profound and severe impact on individuals and the world.
“Individuals should think about the worst-case scenarios and plan for them. The world will be crazier than you think it will be. Put money away, and then you can live with much more freedom.”[2]
The Black Swans We’ve Met
Black Swans are largely unpredictable occurrences and since they’re unexpected, they are also unplanned for. They catch us off guard and take us by surprise and as a result — they can have severe consequences.
The Corporate Finance Institute outlines some “real-life” Black Swan events that not only still linger in our psyche but caused massive losses of personal wealth, challenged the integrity of our social systems, tested the capabilities of federal bailouts, exposed the vulnerabilities of our banking infrastructure and, in many respects, forever lost the trust of everyday investors.
The 1987 crash in stocks represents a black swan event in financial markets. On Monday, October 19, 1987, the Dow Jones Industrial shares dropped 22.6%, which is the biggest single-day loss in history.
During the rapid growth of the internet in the 1980s and 1990s, many internet companies were launched. The market was caught up in a frenzy from 2000 to 2002, when many of these overvalued companies failed, wiping out nearly a trillion dollars’ worth of stock value. The NASDAQ Stock Market lost 78% of its value in the dotcom crash.
The attack on the Twin Towers of New York’s World Trade Center prompted the closure of the NYSE and NASDAQ on the morning of September 11, 2001. Stocks plummeted during the first trading week after 9/11 — $1.4 trillion in stock market value was lost within a week.
The 2008 Global Financial Crisis
The global financial crisis in 2008 started with the collapse of Bear Stearns, creating a domino effect that caused Lehman Brothers to file for bankruptcy—the largest filing in US history. Other companies also followed, including AIG, Countrywide Financial, and IndyMac. In total, over $10 trillion was eventually wiped out in the global stock market.
In June 2016, news of the British referendum’s decision to leave the European Union caught many by surprise. It caused the British pound to drop sharply to a 31-year low against the US dollar. The Brexit vote wiped out nearly $2 trillion of value in global markets.
The COVID-19 pandemic of 2020 came totally out of the blue, with severe consequences worldwide that virtually shut down entire economies across the globe. In addition to the huge loss of life, the global pandemic was also a black swan for the financial markets. Stocks on the New York Stock Exchange tumbled by one-third within the first weeks of the pandemic.[3]
New Black Swan Warnings
A hedge fund manager recently rattled Wall Street by issuing a sobering warning about the economy. Mark Spitznagel calls himself “the crash guy,” and he’s famous for earning a cool billion dollars in a single day during the August 2015 ‘Flash Crash.’ He is now predicting a big rally in equities followed by an even bigger crash. Spitznagel sees current condition on Wall Street very much aligned with the markets back in 1929.[4]
And he is not the only one. Another hedge Fund legend, Paul Tudor Jones is predicting new stock lows akin to Black Monday. Jones reeled in a nice profit back in 1987 and is now worried about the impact of tariffs on China and a subsequent market collapse.[5]
Similarly, the Organization for Economic Cooperation and Development (OECD) based in Paris says that tariffs will soon cause the U.S. and global economies to slow dramatically.
“In a quarterly report, the Paris-based research body forecast the U.S. economy will grow 1.8% this year and 1.5% next year, having expanded by 2.8% in 2024 … The global economy is now forecast to grow by 3.2% this year, a slight slowdown from the 3.3% expansion recorded in 2024 … In 2026, the global economy is expected to grow by 2.9%, an unchanged forecast. The OECD expects the slowdown to be more apparent in the second half of this year than it was in the first as the boost from businesses building stocks ahead of the rise in duties fades.”[6]
And just a few weeks ago, Ray Dalio the founder of Bridgewater Associates, the world’s largest hedge fund, warned that America’s unsustainable debt burden could trigger a financial heart attack. Speaking at a gathering in Abu Dhabi earlier this month, Dalio warned that our debt servicing costs are “squeezing out other spending” and building up like plaque in a clogged circulatory system, according to Reuters. “A doctor would warn of a heart attack,” said the billionaire manager of the world’s largest hedge fund.[7]
While Black Swans are unpredictable, they are also not without fair warning and these influential voices have raised the crisis alert level in a financial market that is overvalued, a job market that is weakening, and an economy that is mired in growing tariff uncertainty and fallout.
While precious metals do not need Black Swan events to prove their inherent value, they are a viable hedge against market downturns, economic chaos and an unforeseen world crisis.
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[1] https://www.britannica.com/topic/black-swan-event
[2] https://www.randomhousebooks.com/books/176226/
[3] https://corporatefinanceinstitute.com/resources/economics/black-swan-event/
[4] https://www.wsj.com/finance/stocks/black-swan-manager-sees-huge-rally-then-1929-style-crash-f2d16c9b
[5] https://fortune.com/article/paul-tudor-jones-market-warning-tariffs/
[6] https://www.wsj.com/economy/global/u-s-economy-set-to-slow-less-sharply-this-year-but-tariffs-will-hit-hard-in-2026-oecd-says-50f9dfab?
[7] https://finance.yahoo.com/news/billionaire-ray-dalio-warns-debt-233112283.html
