Harley Bassman Presents: The White Swan
The Black Swan is a metaphor that describes an event that comes as a surprise, has a major impact on markets or society, and is often considered painfully obvious with the benefit of hindsight. This raises the question: Why do we often ignore, to our detriment, the more commonplace White Swan?
[Editor’s note: The following is from the latest commentary by Harley Bassman. If you’re not familiar with Bassman, he created the MOVE — more here.]
Much is written about the Black Swan, famously
H- thanks for providing this amazing information flow.
The other issue I keep my eye on is how much money printing the US is doing relative to Europe, Japan & China. If the other important economies are printing too ( just on paper- not backed by anything but their economy, rule of law and future opportunities), it seems less precarious.
Being old enough to have voted against Reagan twice, I simply do not understand the concern about inflation. Let’s say the Fed and the Yellen treasury actually succeed in getting inflation above 3 percent and it stays there for a year — or goes even higher. The Fed could immediately engineer the rate on the 10yr to 4% — we wouldn’t need Volker’s 17 percent — and the whole economy would slow to a crawl, taking inflation down with it. Am I right?
The main challenge for the central bank is taming inflation without causing an economic crisis: if you’re too slow to tame it, inflation keeps running away; too fast and the expected value of most assets suddenly use a new discounting rate.
I suppose that as long as participants in the economy think the causes for inflation are temporary, they won’t take long term risks with the assumption that their assets will appreciate indefinitely.
To me the main risk of engineering inflation as things stand is that with no wealth tax or poverty credit, there’s no way the poorest will improve their relative buying power. They’ll get further priced out of housing, education, and health.
Great comment, Manuel. The point I was trying to (ham-fistedly) make is that the Fed (and the CBs of soverigns that print their own currency, more generally) always have it in their power to control/keep a lid on inflation. The question(s) is: At what cost, and borne by whom? You make the excellent point that that cost invariably will be borne by the people least able to afford it.
@MFN Being the same age all can say to that with certainty is “maybe”.
H, thank you for sharing such a high quality post. It reads like a paper in a financial academic journal.
I mean we keep talking about inflation coming and we’ve been talking for over a decade but I keep wondering how you get inflation when consumers are buried in debts with no possible way out. $15 min wage doesn’t handle the trillion dollars in student loan debt or the massive household debt. Even cutting $50k in student loans for a lot of people means that instead of paying for the next 30 years they’ll be paying the balance for the next 10-15. Without fixing healthcare and cost of living issues… where do you get inflation? I just don’t see it.
So…buy the 450C Leap and sell the 300P leap and pocket $600 per contract…getting paid for having both up and downside insurance…hmmmm…or if you’re really bearish, do the same for the 275P…for free! Kinda makes a fella wonder…