And a Black Swan Appears on the Horizon

By Stephen P. O’Donnell Sr., President & CEO, O’Donnell Wealth Management

In the investment world, the term black swan is often used to describe an unpredictable or unforeseen event, typically one with extreme consequences. Former Wall Street options trader Nassim Nicholas Taleb wrote a book in 2007 called The Black Swan: The Impact of the Highly Improbable. It is an excellent read. I highly recommend it.

In his book, Taleb posits that Black Swans, by their very nature, are always unpredictable. They are rare statistical outliers. He refers to these events as the unknown unknowns. Some examples of Black Swan events are the attacks on 9/11, the financial crisis of 2008-2009, the fall of the Berlin Wall and the stock market crash of 1987.

President Trump’s election could be described as a black swan. It was not predicted to happen. In fact all of the “experts” and polls believed that it would not happen. The odds of a candidate getting elected, who is not a politician, and really doesn’t identify with, or act like, a member of either of the two major political parties, is extremely low, the very definition of a statistical outlier.

The most recent black swan I see emerging on the horizon is the killing of Iranian General Qassem Soleimani. Recent presidents have kicked the can down the road with respect to the growing threat of the Iranian government. Decades of appeasements, including sanctions and a 1.7 billion dollar payoff, have been the norm. This has been going on for 40 years. Under increased pressure from sanctions, the Iranian government has recently escalated its level of provocative behavior to an extreme.

After exercising restraint and diplomacy for 3 years, President Trump responded by acting decisively and aggressively to the increased provocation. This, in my opinion, is what has given birth to the latest black swan. China, Russia, and several European countries have very lucrative financial ties to Iran’s regime. It is this element that creates the possibility of many unintended consequences; unknown unknown’s if you will.

In the investment management business, we refer to these risks as geo-political risk. While the U.S. economy continues to perform well and many U.S. companies are trading at all time highs, geo-political uncertainty, and therefore risk, has just increased dramatically. It is impossible to predict what the long term effects of the Soleimani killing will be on geo-politics and on the markets; this is precisely what makes it a black swan.

Black swans are not always negative. Positive black swans can exist. For example, you happen to meet a stranger while standing in line for coffee. You strike up a conversation that leads to a business deal that transforms your business for the better. The fall of the Berlin Wall was certainly a positive black swan.

Only time will tell what the effects will be of the emergence of this latest black swan. Perhaps a powerful, no nonsense demonstration of strength approach is exactly what was needed to set a new tone and course for the future. Diplomacy and appeasement have proved to be quite unsuccessful over the past four decades. Time will tell…

Stephen P. O’Donnell Sr., is President of O’Donnell Wealth Management, an asset management and financial advisory firm located at 1306 Sheridan Avenue in beautiful Cody, Wyoming. Steve has two decades of experience, having worked as a portfolio manager for some of the largest firms on Wall Street. For a no cost, no obligation, initial consultation, call 307-586- 4279, email: steve@odonnellwm.com, or simply stop by the office Monday through Friday.

This report was prepared by O’Donnell Wealth Management, and reflects the current opinion of the author. It is based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.

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