“Black swan meat is delicious and has medicinal value, [It is] an exceptional health food of the 21st century with a unique taste and extremely high nutritional value.” -Rodong Sinmun (State News Paper of the Democratic People's Republic of North Korea)
This piece is dedicated to Daniel Kahneman and Daniel Ellsberg. Thank you for your invaluable contributions and for making a difficult world make more sense. Rest easy, brothers.
The Black Swan Party is an analytical soiree of sorts. A place where the erudite minority of Wall Street go to discuss the unthinkable eventualities that could render us all bankrupt and indigent. Of course, in the extreme, certain Black Swan risks could lead to species-wide immolation from nuclear catastrophe, whether accidental or purposeful.
One thing that people often miss is that Black Swan risk can be monetized, and most of the time when it is effectively monetized (not just feared), it is done so in the way opposite to how most people think it is from watching The Big Short. Hindsight bias always makes the last drivers of crisis seem much more apparent and predictable than they were in reality.
That doesn't mean you can't economically benefit from Black Swans. But it's more accurate to say you can benefit from what people most fear will happen not happening, rather than predicting what will cause the next forced liquidation event, much less correctly timing it. The latter is far less likely than the former.
Economically benefitting from the fear of Black Swans is much more profitable and sure than finding out what will make the crowd panic next before it happens. That is nearly impossible. The profitable contrarian position is most often of an optimistic disposition rather than a pessimistic one and certainly rather than an apocalyptic one.
There are many ways to monetize Black Swan risk. We can do it in financial markets with derivatives, but there are other more sophisticated ways to profit from the sometimes irrational fears of others. Of course, as you can see above many of the ways for monetizing low volatility consistently may have too many pigs at the trough. Eventually, this could cause skinned knees and tears. Maybe it could even cause a financial crisis. But you never know until the Fat Lady sings, so to speak.
What is more likely is that something we aren't aware of right now will cause the next financial crisis. We always build a mental Maginot Line based on what caused the last crisis, and the new risk always goes through the metaphorical Low Countries, catching us collectively off guard. If a lot of people know about it, it's not really a Black Swan risk.
Nuclear Blackmail
The North Korean state is more akin to a criminal, barbarous, and kleptocratic mafia family than a real government that cares for its people. Still, they knew they could get quite a lot of financial and political concessions if they could get one thing: nuclear weapons. And they did. Not only do they benefit in a direct military sense because of the taboo of nuclear states never having directly fought one another, but they also have usefulness for purposes of coercion. Much the same way that a gun can be used to rob a liquor store without needing to be fired.
In our best estimation, it is probably unlikely that North Korea would use its nuclear weapons in a direct military sense. It would be met with such an overwhelming response as to be suicidal and irrational. The regime knows they and their loved ones would have a high probability of perishing in such an outcome. It is still remotely possible. Possible enough to cause great worry. More likely is that the regime has always intended to use its nuclear weapons for coercive purposes.
This, in spirit, is not too dissimilar from monetizing the fear of Black Swan Risks that most often do not affect markets as negatively as participants initially perceive. Of course, making money in markets off of misplaced fears driving irrational action is not morally equivalent to nuclear blackmail. The point is, that fears of the unknown, and of irrationality itself, make future outcomes very difficult to predict or quantify, and it is this uncertainty in both different methods that enables alpha to be found. The military alpha of nuclear weapons is clear, it leverages the spending many times. But it also provides an excellent mechanism for coercion. The world's best.
Whereas the United States may be able to dispense of North Korea's conventional forces relatively quickly even if they spent much more money than they currently do on their military, the nuclear weapons assure that the United States is far less likely to risk a pre-emptive attack of any kind, and thus create defensive stability that would otherwise be hard to attain.
How to Properly Prepare a Black Swan Meal: Don't Cut Corners
Frying black swan is like deep frying turkey. It is highly dangerous. Make no mistake. It can DEFINITELY blow up in your face. That is why timing is crucial, and I mean this mostly in a psychological sense. Eat your fried black swan when fear is especially hot, so to speak. I tried to obtain North Korean recipes for Black Swan. It was futile. However, one asset you will always have on your side is that the media is scaring the living shit out of people constantly and getting them to overly focus on risks that have a low probability of happening, relative to the actual risks. Terrorism is a great example.
So, ride the coattails of these expert monetizers of Black Swan risks, since the North Korean approach is much more expensive. You can capitalize on the undue fear they are spreading. Fiddle while Rome burns. It will make you feel better. This is an analysis of the illustrious New York Times below, I don't even want to start on America's right-wing eco-chamber.
When other market participants are overly fearful, this is a great time to short volatility. One way you can tell when things may be highly anomalous and near a reversal point in volatility spikes is when the curve of VIX futures inverts, meaning that more volatility is expected over the next thirty days than over the next quarter, as one example. An old Wall Street aphorism that conveys this moment of opportunity articulately is when Nathan Rothschild said "Buy when there's blood in the streets, even if it's your own."
One of the things that was on nobody's bingo card was a vicious and deadly terrorist attack of unprecedented scale on October 7th, 2023, in Southern Israel. Indeed, even though it was an asymmetric action primarily aimed at causing loss of life, panic, and irrational and self-defeating actions on the part of its enemy, the brutal attack also resulted in Israel losing control of larger portions of its territory than most conventional Arab armies could muster even during their peak success in past high-intensity conflicts.
The attack was a true Black Swan event that was not considered possible the day before and altered the world forever after it occurred. Yet, despite this being a Black Swan event that was terrible, disturbing, and deadly, the market is at an all-time high months later, and volatility is incredibly low. Wouldn't it have been great if someone had told you to short volatility during the fear immediately following those terrible attacks? Someone did. It was me.
Of course, the events in the wider region had been proceeding in the opposite direction. For the first time in history, the state of Israel was enjoying a widespread economic and political detente with many former adversaries. Part of Hamas's intent was to destabilize or break this detente. But terrorist attacks are partially intended to create an irrational response in the enemy, and the current events now suggest that the pre-attack detente is wearing thin.
American aircraft carriers were sent to stabilize the region and prevent inter-state conflict from erupting early on. Initial fears were overblown of a wider regional conflagration, and so far, a major conflict between Israel and other nations has not broken out.
Yet Israel's heavy-handedness in Gaza could still provoke such an undesirable outcome. In the last installment of the Black Swan Party, I used another surprise attack by Arabs 106 years earlier at Aqaba as an example of a physical event that was redolent of the panic and surprise experienced when markets face unexpected, even unimagined, Black Swan risks.
One way to often achieve a rout in the enemy is by one of warfare's most analogous situations to the idea of Black Swans in financial markets: the surprise attack. Success is often based on a defender's assumptions that turn out to be painfully incorrect. A great example is when T.E. Lawrence (Lawrence of Arabia) went on a treacherous desert route considered impassible by his enemy to capture Aqaba. In appearing behind the large naval guns that made the fortress so prohibitive, he quickly secured victory against stunned Ottoman defenders. Such attacks, like Black Swan events in markets, can result in swift and decisive reversals of fortune. The nature of the Black Swan risk is that it always takes the impassable desert approach. It always shows up in our rear, where we often least expected it. We are all the Turks of Aqaba the day before the Black Swan reveals itself, knowing we are safe when we are truly vulnerable. - Sangfroid (Don't Assess Risk Like a Fish)
We discussed exactly what a Black Swan risk is and isn't in the last installment of Black Swan Party. But now for the good stuff. I have a live-fire, recent example of how to successfully capitalize on Black Swan risk: juicy, fried, black swan. In the article linked below, I expanded upon an earlier theory I had introduced in May, explaining why the Volatility Index ($VIX) was likely to be relatively suppressed in our current post-COVID cycle compared to previous market cycles. Building on this theory and considering the tactical market and geopolitical realities from the recent attacks, I authored an article introducing a short VIX trade using options called 4 Reasons I'm Shorting The VIX Despite Geopolitical Risks.
I presented four main reasons for shorting the VIX, the first three of which I will summarize. I will quote the fourth directly.
The soft landing thesis was (and is) intact, paving the way for reduced volatility in the face of very scary risk.
The VIX is called the fear gauge, but it actually measures the implied volatility of the market. Somewhat counterintuitively, the VIX goes down during earnings season as pairwise correlations tend to decrease.
Seasonal factors had flipped from largely negative to largely positive at the time I made the call.
And finally, the fourth reason I will quote directly from the article below:
4. The macroeconomic impact of the Arab-Israeli conflict, particularly in the wake of the Yom Kippur War, was multiplied by two factors: The Cold War magnifying and intensifying the consequences of the conflict and the developed world's dependence on foreign-produced oil. Both of these items have changed. The world is still far more globalized now than it was then, despite recent and apparent setbacks to globalization. The first significant change is that the US economy has become far less reliant on oil and is far more efficient in its use than when the Arab-Oil Embargo roiled global markets and the US economy in particular.
Then I also included this fantastic chart that my former colleagues had produced at Fundstrat Global Advisors. This chart, I think, shows beautifully why the assumption so many bears thinking a renewed Arab Oil Embargo would reignite inflation was flawed. Firstly, the United States is now producing copious amounts of Energy relative to the 1970s.
Secondly, the share of the consumer wallet dedicated to Energy expenses is also much lower. These are two facts that are plain to anyone who will thoughtfully comprehend them, but in the heat of a fear-driven moment, they seem strangely elusive. We seem much more inclined to believe the past is repeating, even if thoughtful analysis betrays this assumption. It's how we're built.
While I was shocked by the terrorist attacks like everyone, I also studied to be a counter-terrorist and counter-insurgency analyst when I was in college, though I ended up taking a different path, so I was more familiar with the Arab-Israeli conflict than most. The many hours spent understanding the issue enabled me to have a reasoned assumption as to what the impact of the October 7th attacks would be, despite a lot of hyperbolic narratives flying around.
To me, the attacks were shocking but had a low likelihood of imminently causing the type of inter-state war that could significantly interrupt commerce and commodities or roil markets sustainably. Pairing this rationale with my theory for why the VIX was structurally more suppressed than previous cycles gave me confidence in the trade I introduced.
You'll be able to read the article in detail to understand exactly what the trade recommended was, but I'll focus on two contracts: the $16 and $17 December 20 $VIX put options. These traded at $0.91 and $1.42 on the day I published the article, respectively.
VIX options are European expiry and settle in cash. You can see what the $VIX and the wider market did over the course of the life of the options. On December 20th, there was a $VIX spike. However, settlement values for the $VIX options were luckily calculated early in the day before the spike occurred.
Trading VIX options can be tough, and the markets can be illiquid. However, the December options had time and liquidity to get in easily on October 10th. I got lucky on my trade in several respects, particularly with missing the $VIX spike on December 20th for settlement purposes.
I also recommended tight stops and may have gotten stopped out in the spike that occurred after October 10th, but I was too lazy to implement them myself in all honesty. I got lucky there. Although the gains would have been significantly higher if I had stopped out and repurchased the contracts on or around October 22nd, 2023. Hopefully, some who followed the trade took this course.
Still, the December 20 $17 put options paid $4.69 (entry $1.42) per contract on the date of settlement, and the December 20 $16 put options paid $3.69 (entry $0.91). This means they experienced a respective price gain of 230% and 327% in less than three months. Remember also that VIX options settle in cash. Whether or not my VIX theory is accurate (if you think not, please tell me why!), the options I recommended certainly printed deliciously. That much is beyond debate.
You may have thought this column would include interesting anecdotes or factoids about the mysterious Black Swan risks that stalk humanity and markets perpetually, which you could use to up your social standing at cocktail parties. And you were correct about that, to be sure. However, few people have probably imagined that Black Swan itself was on the menu.
Such an exotic menu item may have precluded you from coming to our soiree. You may have found an excuse to stay home. But I can assure you, my dear readers, that the Black Swan's flesh is as sumptuous as it is sweet when properly prepared. Embrace the taboo.
Could you look at the returns above? As the North Koreans demonstrate above in the headline picture, keeping your black swans in a humane and desirable environment is probably conducive to better taste. That part is just a joke. For our purposes, feasting on the flesh of the Black Swan is a metaphor for boosting our alpha from the undue fear of others.
The Meat Paradox: How Do We Categorize Risks?
“The psychologist, Paul Rozin, an expert on disgust, observed that a single cockroach will completely wreck the appeal of a bowl of cherries, but a cherry will do nothing at all for a bowl of cockroaches.” ― Daniel Kahneman, Thinking, Fast and Slow
What we decide to eat changes with the times and is subject to the whims of the crowd, just like the prices of assets. Our culinary selections are like any other trend. What's in vogue today would have been unthinkable yesterday, and tomorrow's trends probably currently disgust us. Cows are sacrosanct in India and among the most widely consumed animals in the West.
Two decades ago, it would have been difficult to get most Americans to eat raw fish; now, they pay dearly for the privilege. In India and Pakistan, dogs are not eaten because they are considered dirty creatures. Dogs aren't eaten in America because they are considered "man's best friend."
Something called the "meat paradox" describes the finicky way human beings relate to the animals they consume. Some humans are perfectly fine ignoring the contradictions of eating animals they might admire in another context. I think we categorize market risks in much the same way. That is to say, irrationally.
For some, contemplating how their dinner is killed probably makes them face their mortality more than they'd care to, or even a subconscious disdain for their inner carnivore. Most can maintain a cognitive dissonance. They would be chagrin if they saw the beast killed, yet since they are disconnected from the act, they don't think twice about it. Likewise, some risks that strike an individual's unique emotional pressure points will appear more relevant and ominous than they are in reality. This happens in a collective sense as well, like with terrorism. You have a minuscule chance of being killed by terrorism, yet it consumes a disproportionate time of both media and public policy attention.
Of course, there are many justifications for eating animals, and it is impossible to deny that humans have consumed animals as a primary nutritional staple for much longer than civilization has existed. However, the meat paradox shows some of the same cognitive dissonances that occur on a large scale and are also commonplace in markets.
Less prevalent today are the ways that food used to tie in heavily to class. Lobster, which is considered an expensive delicacy today, was once considered a trash food fit only for slaves and prisoners. Once folks realized that cooking the animal while still alive prevented a foul taste from developing, it slowly became the delicacy we know today.
Lobster meat was even once referred to as "poor man's chicken." In modern times, this past relationship has been reversed. In Ecuador, they eat Guinea pigs, which have yet to be accepted by Western palates. One of the more interesting ancient expressions of the meat paradox was how the possession of animals was treated by law.
Swans are majestic creatures. Their natural beauty has led them to be coveted for centuries. They even became a status symbol of the rich. The trend was so prevalent in medieval times that swans even had a carve-out from customary law governing the ownership of animals, a particularly important sub-genre of law in pre-industrial times when starvation and famine were common.
King Charles of England possesses many titles. One of them is Signeur of Swans. That's right, the swan (all swans) were, for many centuries, officially the property of the English royal family, not to be consumed by commoners.
You see, Black Swans are not just our primary subjects and honored guests at our statistical soiree. They are also on the menu. It is a delicacy once reserved exclusively for royalty. But now, through the infinite wisdom and graciousness of Kim Jong Un, the succulent and "delicious" flesh of the Black Swan has been made available to the masses. And I am trying to follow in the Dear Leader's footsteps, metaphorically.
The headline photo is the Black Swan Party held by the People's Republic while they are being fattened for sparse North Korean tables, complete with inflatable guests of honor. I use this image as inspiration for my future trades. When you hear traders ruminating about how the Fed ruined their Bearish trade, or that the US deficit will surely break markets this quarter, just remember that they are helping you prepare a profligate meal fit for royalty.
Metaphorically speaking, you may have had another idea of a Black Swan Party. However, suppose you're managing money and weren't long FAANG because you thought high interest rates would hold back gains. In that case, you're starting to be able to identify metaphorically with the starved population of North Korea. Luckily for you, you're only starved for outperformance, and your bonus is on the line rather than your life.
The hapless North Korean people are literally starving, Wall Street is only starved for returns. While it is usually best to disregard the advice of totalitarian leaders unless you live under their domain, then it is imperative for your survival that you follow it; we think that Kim Jong Un's innovative thinking on the fly to use the flesh of the illustrious Black Swan to feed his starving people might have some pearls of wisdom for the plight of portfolio managers, increasingly starved for returns. Increasingly lagging behind the benchmark and their peers.
An important thing to remember is that Black Swan risks are never the primary risk the market is concerned with, by definition. Furthermore, it's very important to remember that the primary catalyst that concerns even the most informed and motivated market participants is rarely the primary driver of downside action.
There have been many developments since our last edition. It has been the best times and the worst of times. While a new bull market appears to be sharpening its horns, we also simultaneously face recently unprecedented geopolitical instability in the country that controls the world's largest nuclear arsenal.
Market Risks and the Meat Paradox
Well I dined last night with Scarface Ron, On Telapia fish cakes and fried black swan, Razorweed onion and peacock squirrel, And I dreamed all night about a beautiful girl, -Tom Waits, Bottom of the World
What we and others deem acceptable to eat changes over time, like so many other social preferences. Ultimately, risks focused on by any individual could be boiled down to a social preference. Perhaps the result is merely due to the tides of whim. It shows a more erratic nature of collective behavior than most of our ego-driven outlook on life would suggest. The whims of the crowd affect what is acceptable to eat, just as it affects the prices of the assets we own, and which risks we choose to prioritize in our analysis.
I contend that the risks motivating and being discussed in the financial discourse by Wall Street's "informed" crowd have not much more credibility or staying power than the changing whims of what we choose to eat as a society. The ill-fated predictions of recession that have been a dime a dozen over the last few years are a perfect example of my point.
So, the market is sending incredibly bullish signals, all while the international legal regime that presided over an unprecedented multi-decade economic boom disintegrates and the risk of nuclear war exponentially increases. These two occurrences seem as if they would be mutually exclusive, but they are not. The market climbs a wall of worry and falls on a slope of hope. This seems to have been true for the wider economy in 2023 as well.
And we should always remember that the way the market works and prices things are not some mysterious thing to be worshipped. Markets do contain flashes of collective wisdom and allocate capital more efficiently than centralized methods of distribution, but they are not an infallible oracle. They are still a reflection of flawed human psychology. And to say human psychology can't be flawed at the collective and group level would be a laughable statement.
Yet, that is the constant paradox we face in markets: there are always reasons to be optimistic and always ostensible reasons for pessimism, too. So, how do we settle on the price when two paths lie before us? Very simply, my friends, the answer I have found and that those whose opinions I respect on markets most have found, is that optimism is the more profitable path.
If a Black Swan Falls in a Forest and No One Hears It Is The Market Truly Efficient?
'If you were allowed one wish for your child, seriously consider wishing him or her optimism.' -Daniel Kahneman
One of the unfortunate and precarious realities of the world we live in is that we could accidentally or purposely incinerate our entire species in an irreversible nuclear plume at any moment. This is the mother of all Black Swan risks. There is no precedent for it, and there is ample means to achieve it. Human beings have proven themselves to be reckless or mistaken in military actions as a constant note throughout our tumultuous history and this reality is often a driving reason behind the tumult.
While psychotic military types in the 1960s fantasized about some winnable or feasible nuclear military conflict, the truth is that within a few decades, most life would likely be unable to exist on Earth because of nuclear winter if the US had ever implemented its nuclear plans. Essentially human beings in the highest positions of authority thought they had viable military options that would wipe out humanity, even if complete military success was achieved.
Even in the best-case military scenario, if the USSR couldn't fire back, our offensive action would have likely ended all human life. During the Cuban Missile Crisis, a series of false beliefs on both sides nearly led the world to an accidental and apocalyptic nuclear exchange that likely would have wiped out the human race. Yet markets and even most government experts never truly perceived how high the risk was. Several officials had beliefs that proved false, which almost resulted in the end of humanity.
Two false assumptions that nearly started an incomprehensible exchange of hydrogen bombs that would have resulted in hundreds of millions of instantaneous deaths nearly collided in the waters outside Cuba. American officials famously implemented a "Quarantine," which was an effective blockade. The different name was given to the identical military action because it was a violation of the international law the United States advocated through the creation of the United Nations. But this situation was definitely what you could call a pinch.
Daniel Ellsberg, who was a nuclear weapons analyst for the US Government thought the chances of an exchange were pretty low, like 1 in 1,000 while he was in the mix. Later, upon closer examination and upon interviewing key officials he found out the chances for a nuclear exchange probably got significantly higher than 1 in 10. We narrowly missed omnicide by accident. Several assumptions made the situation far more precarious than even John F. Kennedy and Nikita Khrushchev were aware of.
Russian Foxtrot-type submarines that had been deployed to Cuban waters were built to operate in the Arctic Circle. In the warm waters, conditions deteriorated to nearly unbearable, and of course, compromised the judgment of the crew. It was 140 degrees in the main cabin and 113 degrees in the coolest area near the torpedos.
The Russian submarine crews were not aware the American naval crews were signaling them with practice depth charges to get them to the surface. They thought they were under attack. Turns out it's easy to freak out when explosions are going off next to you in a submerged metal tube that is blazing hot. According to one Russian submariner, "It felt like you were sitting in a metal barrel, which somebody is constantly blasting with a sledgehammer."
The US was unaware that the Russian submarines contained a nuclear torpedo with about a 15-kiloton yield, about the same explosive yield as what American forces dropped on Hiroshima. Also contrary to the US's understanding of highly centralized Soviet leadership, the Presidium had granted battlefield commanders, both on land and in the submarines, discretion to use tactical nuclear weapons if under direct attack.
The US thought that the Soviets exerted a great deal of control over Castro. Castro had gone "rogue," and was ordering his forces to fire at low-level American flights against the wish of his senior Soviet ally. This nearly gave Kennedy's jingoistic joint chiefs the pretext they needed to launch an invasion of Cuba that surely would have resulted in a devastating local nuclear exchange at the very least. But it's highly likely that once a bomb went off, US military assets could have started bombing Soviet targets with or without orders from the President.
Some understood the situation correctly. On October 27th, 1962 Robert McNamara reflected on the thoughts he had knowing what was going on and his words reflect the very real fears of someone who was at the very center of history's most dangerous (known) crisis. McNamara said, "The Saturday before the Sunday in which Khrushchev announced the withdrawal of the missiles... and a U2 was shot down... I remember leaving the White House at the end of that Saturday. It was a beautiful fall day. And thinking that might well be the last sunset I saw. You couldn't tell what was going to follow."
Not even McNamara could have imagined how close the world was. Nearly at this exact moment, a Soviet Submarine captain ordered his distressed crew to fire the atomic weapon on board. Such an action, according to President Kennedy would have provoked a full US retaliatory response. Even if the US had been relatively successful, which crazed military minds like Curtis LeMay thought, it is now known that the fallout from our weapons alone, even if we'd successfully disarmed our communist adversaries, would have been enough to cause a nuclear winter that ended human life.
As a Soviet submarine, out of contact with its superiors, wallowed under brutal conditions and retreated from a perceived American attack, the unthinkable happened. Its distressed Captain ordered the officer responsible for the nuclear torpedo up to the bridge. The depth charges were getting closer and his men were dropping like flies from the heat. Passing out. An especially perilous state of affairs on a submarine.
"Maybe the war has started up there, while we are doing somersaults down here," screamed Captain Valentin Grigoriechich trying to justify his unthinkable order. "We're going to blast them now! We will die, but we will sink them all: we will not disgrace our navy."
Can you think of a worse sentiment at a worse time? This is perhaps the riskiest moment in human history. Yet it is one completely unperceived not only by the experts in charge of the respective nuclear arsenals but also certainly by markets. The amazing fact is we came so close to nuclear exchange despite the intentions of both Khrushchev and Kennedy to cave to each other's demands to avoid nuclear exchange. Despite these intentions, the exchange almost still occurred.
"The fact is that on Satuday, October 27, 1962, a chain of events was in motion that might have come close to ending civilization. How close? A handbreadth. This is despite the fact, as I have come to believe, that both leaders, Khruschev and Kennedy, were determined to avoid armed conflict: that both, in fact, were prepared to settle on the other's terms, if necessary, rather than go to war. And yet they each hoped, by threatening war, to achieve a better bargain." -Daniel Ellsberg, The Doomsday Machine: Confessions of a Nuclear Warplanner
But the lack of precedent and severity of the consequences make pricing such an event, in terms of markets, very difficult. During the Cuban Missile Crisis, the market slid around 5%, hardly what you would expect during a near-thermonuclear catastrophe. Surely, had the market known the true probability of nuclear catastrophe, it would have sold off. Or would it have?
Art Cashin famously says it won't matter once the missiles are launched, so it pays to be optimistic. I think he's right. And the threat of nuclear immolation is a more severe risk than any financial risk we comprehend in financial markets. But we have to live with it. It has been steadily increasing since February 2022, and most of us haven't changed our lives at all. And markets haven't responded to it either. I will contend this is the same with all market risks, to some degree. Optimism simply pays more than pessimism, and if you can protect yourself against drawdowns, you've mitigated its primary downside.
If we can disregard the horrific and escalating risk of nuclear war and still make money, surely we can think a little differently about the treasury portfolio of regional banks. Presenting risks in an alarmist fashion gets more reads and clicks. Trust me, I'm a financial writer. This incentive leads markets and many of their participants to be irrationally pessimistic at times. But remember optimism always pays more.
One of my favorite financial authors, Ben Carlson of Ritholtz Wealth Management, wrote an article I cited earlier in this piece called Contrarians Are Usually Wrong that rhetorically claims Michael Lewis has lost more investors' money than the last couple of bubbles combined, simply by making investors think they have a good chance of making a Michael Bury-esque trade that finally proves they are the alpha dog of finance. In his article, he included this section.
"The life of a perma-bear looks something like this:
Wrong.
Wrong.
Wrong.
Wrong.
Right. I told you so!
Wrong again.
Wrong.
Wrong.
Still wrong.
Wrong.
Wrong.
Wrong.
Wrong.
Right. I told you so!
Wrong again.
Wrong.
Wrong.
Still wrong."
-Ben Carlson, Contrarians Are Usually Wrong
Now, I loved this simple depiction of the pessimistic position of a perma-bear by Ben Carlson. It's short. It's to the point. He uses writing to convey a statistical truth in a way other than a graph. But now, I urge you to do something. Make the same list, only do one with the opposite of what he said on each line. Now you're getting it, kids.
Welcome back to the Black Swan Party. We'll be back soon, and Happy Easter! Hopefully, some of your tables have been made bountiful with the first great trade we have discussed in the Black Swan Party.
