Butterfly Wings and Black Swan events ......
Idle musings for a foggy Sunday morning (well it's foggy here in deepest Surrey anyway) in the run up to Hallow'een.
We're probably all familiar with the notion in Chaos Theory that potentially the biggest events can be set off by the most trivial of root causes (the classic example being a distant butterfly wing beat setting off a hurricane or something like that). Likewise, there is a similar aphorism that a Black Swan event (i.e. an occurrence that deviates substantially from the normally expected and is therefore very difficult to predict) is potentially the catalyst that sets off a significant market correction.
Putting 2 + 2 together and getting 16, I wonder whether the peculiar intervention by the FBI Director, James Comey, in the US Presidential election on Friday (shock, horror, Clinton E-mail scandal - but no facts to back it up at the moment), might just be such a collusion of events that sets off the often mooted global market sell off?
It all seems so trivial from this side of the Pond, but if the opinion polls are to be believed this has given Trump a big stick to beat Mrs. C. with (and more importantly has diverted attention from the myriad sticks available and being used to beat Trump with). If this rolls up into a Trump shock election win two weeks from now (after all the Brexit vote swung against the pollsters at the last minute) do the markets take fright and everything globally goes to hell in a hand basket? Strange to think of Comey as the butterfly wing in all this ...
Probably too much of a sugar rush from the toffee apples and late night horror movies. I'll go back to sleep now .... although we have been warned!
Gus.
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6 comments
One last thought on the US election. A good summary on the BBC website analysing the breakdown of the national vote in the US.
http://www.bbc.co.uk/news/election-us-2016-37889032
As observed elsewhere Mrs. C won more of the popular vote by 0.2% but lost in the electoral college, not least due to vote leakage to more liberal independents in a couple of narrow margin swing states such as Florida. Also, does seem the US is pretty divided ( in terms of how they voted at least) in terms of male vs. female, ethnicity, college degree educated vs. less educated. Also a marked age discrepancy ( over 65's for Trump, under 30's for Mrs C). Uncanny resemblance to the way the Brexit vote split in the UK.
Good summary. Donald will need to build some bridges as well as a wall.
Gus.
If Trump carries through his promise to strenghen the relationship with Russia and UK. In a post BREXIT world the UK, America and Russia could find themselves at odds with the EU- effectivley controlled by Germany . Deja vu.
Actually if Trump is allowed to sabotage the nascent global collaboration on climate change he could actually bring about the end of the world as we know it.
Question is, will Republican dominated checks and balances constrain him from such stupidity?
As Nassim Taleb, the man who coined the black swan event, has just said, we have now witnessed an orange swan event.
(orange clearly referring to the Donald's quiff).
The end of the world as we new it was supposed to happen at BREXIT. Market drop will again depend on media hype and bias in reporting. Trump becoming president will not be the end of the free world, trade, start of ww3 etc. (I seem to remember hearing those statements before?) There will of course be winners and losers as policy changes..isn't there always?
Well.
The butterfly duly fluttered its wings and the rest seems to be history in the making. An overdone market reaction this morning and time for some judicious, quality stock buying or the end of the world as we know it? Add to the mix the observation that it looks like the Republicans will have majorities in the Senate and Congress and the new President Trump gets to appoint the swing vote 9th judge on the Supreme Court and you have the perfect storm to implement change (for better or worse depending on your politics). Interesting times and all that ...
Good luck.
Gus.