As the Summer of 2009 unfolds, some worried investors are wondering whether we are in a Great Recession or a casualty of the Black Swan theory. The Black Swan, a version written by Nassim Nicholas Taleb refers to hard to predict undirected random events that are beyond our normal expectations. He believes that after these events occur we always try to rationalize them. Taleb believes that financial institutions are vulnerable to huge losses from Black Swan events because their models are defective. The bankruptcy of Lehman, the sale of Bear Stearns and Washington Mutual to JP Morgan and the purchase of Wachovia by Wells Fargo could all be rationalized by an unforeseen event, namely the sub prime mortgage meltdown and the lack of regulation of risk by these firms. Was this a Black Swan or just greed and poor regulation? I believe that these factors are responsible for the near Depression of 2008 and not a Black Swan.
Random thoughts.....watch for a pickup in economic activity as the new Chrysler and GM start to spend money and produce new fuel efficient automobiles....Second Quarter earnings reports begin next week with Goldman Sachs and Intel...the market is in a trading range of 7900-8700 until the end of the year.....money market rates are still near zero while the bond markets have improved dramatically in the last four months.....
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