My commentary this week is about black swans, and as luck would have it, they have just wandered onto the baseball diamond.
The most inexplicable fact about perfect games is that, over the past generation, they have been happening more often. In the 100 years through 1980, there were nine perfect games, less than one per decade. Since then, pitchers have thrown 11 more, better than one every third year. Perfect games were once black swans, as infrequent as severe financial panics. Now they are becoming commonplace.How this all impacts my farm decisions still is unclear. One thing I do know: increased volatility is exhausting. At least at my age.
Come to think of it, the same is true of financial crises. Have we, in either arena, merely experienced a spate of bizarre luck -- an unusual drawing from nature’s urn? Or have the internal dynamics of the games changed, so that once-unlikely results will be the norm? Perhaps the modern ballplayer, built for power more than contact, is less able to squeeze out a late- inning hit when needed. Perhaps financial institutions are so conditioned to depend on the market’s judgment -- or on the government’s willingness to prop it up that -- when either fails, they have less room for error, more propensity to panic.
Our financial architecture is based on our supposed ability to forecast; every time an investor speaks of risk-weighted returns, he or she presupposes knowledge of what the risks really are. The odds against 27 straight outs are no longer what they were; what of the odds of a run of bad financial luck? Those who mechanically rely on a historical pattern take the biggest risk of all. [More]
Which leads me to the suspicion many of us Boomers will look at land prices, machinery prices, and rents and see an exit strategy.
[Update: Due to a technical glitch the wrong commentary was run this weekend. The "Black Swan" will air later (probably July)]