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Could Black Swan theory lead us to world’s worst financial crash resulting into the World's Greatest Depression?

(Last Updated On: August 31, 2010)

Could Black Swan theory lead us to world’s worst financial crash resulting into the World Greatest Depression?
Another gem from Bloomberg was posted. After watching a week’s worth of Bloomberg.com Live TV, there seems to be a huge concern of uncertainty. After many companies are grinding down production or lowering their forecasts on financial results, on wonders if we are on our way to something very catastrophic. You even have Anthony Robbins posting concerns or should we even care about what this motivational speaker thinks? Either way, when you see drops of 27% drop in housing sales from July 2009-July 2010, you got wonder on the results and even the future.
So here we sit about the Black Swan theory. Do read about it at:
http://en.wikipedia.org/wiki/Black_swan_theory
I like the following ten principles:
What is fragile should break early while it is still small. Nothing should ever become Too Big to Fail.
Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks.
Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence”.
Anyhow that leads me to the highlighted quotes from that Bloomberg article: (remember this is legit and not some theorirst like Gerarld Celente:
Highlighted quotes from Bloomberg article:
“They are pointing to a much more dangerous environment than what equity investors believe,” Either you’re going to see the bond market make the big move or the equity market make the big move; the current situation is not in equilibrium.”
This is happening today!!
Nassim Nicholas Taleb, whose book “The Black Swan” is about how unforeseen events can roil markets, said Aug. 11 he is “betting on the collapse of government bonds” and that investors should avoid stocks. Government bonds around the world have rallied on growing signs the global economic recovery is faltering, driving yields on two-year Treasury notes as well as German 30-year and 10-year bonds to record lows last week
“When you have assets so highly correlated, that makes the risks far, far greater,” said Abrams, who worked with the late Fischer Black researching derivative strategies at Goldman Sachs Group Inc. from 1992 to 1993. Black and Myron Scholes developed the Black-Scholes model of pricing options.
The financial system is riskier than it was before the 2008 crisis that led the U.S. economy to the worst contraction since the Great Depression, said Taleb
“The risk is that the government can’t keep spending money to keep the economy afloat,” he said. “The government’s thrown everything and if they fail, the confidence will plunge much faster.”

http://www.bloomberg.com/news/2010-08-30/titan-capital-joins-black-swan-s-taleb-in-raising-bets-on-extreme-moves.html

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