Swan Sounds

The blowout in a niche portion of the Nordic power market, the scale of which threatened to decimate the entire NASDAQ Electric Power Clearing House, brought back the old black swan discussion. If you remember “black swans” were events statistically ranked as almost unfathomable. The cataclysmic days of 2008, if nothing else, showed us that the thin parts of tail risk were a lot fatter than most of us might have believed. Structures, regulations and market attitudes were essentially aligned around (prior to 2008) the concept that funding markets, essentially the lifeblood to the global financial system, were infallible. The single flutter of a butterfly wing in the form of a missed mortgage payment (or many missed mortgage payments) was enough to bring the entire global financial system to the brink. The 10 year anniversary of that look into the abyss has shown us once again that memories are short and the tails are looking pretty thin, as they often do at such inflection points. Black swan events, by their very definition, are unpredictable however the cast of potential characters is rampant: cyber attack, pension crisis, sovereign debt crisis….