You’ve probably heard of a “black swan,” the catchphrase coined from the 2007 book by author and investor Nassim Nicholas Taleb. A black swan for investors is essentially an outlier event that dramatically affects the economy and markets. For example, the 1998 Russian debt default that unexpectedly took down the Long Term Capital Management hedge fund and the 2008 global financial free fall when Lehman Brothers imploded.
It doesn’t take much imagination to see black swans lurking throughout the global economy. Europe’s crisis with the sovereign debt of the euro zone’s periphery nations threatens the health of major banks in the European Union. The fear of contagion from a European sovereign debt restructuring is strong, pushing up rates on Greek, Irish, Portuguese, Italian, and Spanish government loans. China on July 6 hiked its benchmark interest rate for the third time this year as the government attempts the difficult maneuver of cooling down inflation without sending the economy into a hard landing. There’s the bitter talk in Washington by high-profile politicians welcoming the risk of default if a budget deal isn’t reached before an Aug. 2 debt ceiling deadline. Less immediate, but no less disturbing for investors, is the prospect of rising inflation in the U.S.
Nervous?
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