Mark Spitznagel: The Austrians And The Swan – Birds Of A Different Feather

On Induction: If it looks like a swan, swims like a swan…

By now, everyone knows what a tail is. The concept has become rather ubiquitous, even to many for whom tails were considered inconsequential just over a few years ago. But do we really know one when we see one?

To review, a tail event—or, as it has come to be known, a black swan event—is an extreme event that happens with extreme infrequency (or, better yet, has never yet happened at all). The word “tail” refers to the outermost and relatively thin tail-like appendage of a frequency distribution (or probability density function). Stock market returns offer perhaps the best example: 

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What is a black swan event, or tail event, in the stock market? 

It depends on who’s asking. 

To those familiar with Austrian capital theory, the impending U.S. stock market plunge (of even well 

over 40%)—like pretty much all that came before in the past century—will certainly not be a Black 

Swan, nor even a tail event. 

Nonetheless, the black swan notion is paramount—in perception: Market participants’ failure to 

expect a perfectly expected event—that is, they price in only Anglo swans despite the Viennese bird 

lurking conspicuously in the weeds—much like what is happening today, brings tremendous 

opportunity. 

….read the entire analysis including charts HERE