Mental Training, Part 3: What Not to do About Black Swans

Precious metal investors have long been second-guessing themselves, due to false alarms. Many, many false alarms.  They are, quite honestly, shell-shocked.  Even the mention of the next “event”, now simply makes them angry, both at those telling them about the importance of the events, and at themselves for “believing this stuff in the first place”.
They feel jaded.  They feel foolish.  They feel betrayed.
While I totally understand and empathize with those feelings, they’re forgetting to set that anger in the rightful place: right at the feet of the board of directors of the Federal Reserve.  They are failing to channel and harness that anger and outrage, and use it for something positive, like stacking.
The thought never occurs to many of them, that if they simply put even a little bit more into gold or silver at 30% and 65% discounts, respectively (from their highs 3 years ago), that their investment cost in those metals would take a dramatic plunge.  They fail to see that they could become much stronger hands than they are now.  None of that matters to them anymore, they’re tired of “being played”, by their emotions, and by “shysters”.
In fact, for many of them, stacking is now the last thing on their minds.  Many are now simply waiting for the next miraculous rally, so that they can mercifully dump those positions at the prices they bought them at.  Many will sadly do this too, just as the Bird lands, and the Great Flood washes everything else away.
The Black Swan is real, and it is coming, just don’t bother looking for it.

Den of Thieves 1 oz Silver Bar
Secure Yours Now at SDBullion!


Submitted by The Wealth Watchman:

swan end

Did you ever wait up for Santa Claus when you were little?

If you did, then you know the drill.  You knew to be on your best behavior for your parents (so they’d let you stay up), you prepared a welcoming plate of cookies or brownies, with a fitting beverage to accompany it.  Perhaps you even threw in a little note, in case you fell asleep.

Then, when everything was perfect, with bright eyes, you perched upon your favorite chair, and you sat!

And sat, and sat, and sat.

You peered at the clock, “gosh, it’s 9:45, Santa must’ve hit a bad storm”, you said (very proud that you were now old enough to tell time).  Still, your spirit wasn’t dampened, was it?  You were bound and determined to witness his coming.

You knew that if you could just get that glimpse of Santa, even one time, then you’d never even need to do it again.  Your mind would be settled, because your faith would be sight.  You just had to lay your very eyes on him.  Little did you know, the problem was that your eager patience, was preventing the real “Santas” in the next room, from making their move.  You had no way of knowing that your actions were holding up the entire game.

Isn’t that always the way, too?  Like the “watched pot” which never boils, like that mystical creature, “True Love”, who so often waits until you stop pursuing her, before she visits you….so too, acts the much-heralded creature that we focus on today.

Now that we’ve covered how to use the enemy’s weapon of price management against him, as well as how to properly use the commentary and analysis of precious metals experts, it’s time to bolster your growing arsenal of skills, once again.  This time, we’ll be looking at unhealthy ways to view key occurrences, how those mistakes actually hinder you in your stacking, and what a better way of viewing them might be.

The Dreaded Bird

Here’s a term you may have heard used before in the precious metals community:

The “Black Swan Event”(BSE)!

In fact, you’ve probably heard it so much, that you might’ve started to wonder if white swans are extinct!
It seems that every time something happens in the financial community, that is the teensiest bit negative, commentators will pull out the “black swan” card.

Don’t get me wrong, many of the folks who use this phrase mean well, but they’re usually using it in the wrong way.  Despite its overuse, it’s still a meaningful phrase for us today.  Let’s take a quick look at where this term came from, in the manner that we use it.

In 2001, Nassim Taleb, introduced the concept of the “Black Swan Event” in a book called, “Fooled By Randomness”.  By the way, 2001 isn’t that long ago, so it’s still a very new term, and considering how widely it is spoken, it’s obviously an important one.

Interestingly, the original term’s intended use was for financial events, and not general ones, which helps explain why you never hear this term spoken of in any other context.  However, to better understand how we should view events in light of this term, let’s take a look at the stated criteria that must be fulfilled in order to qualify as a BSE, via wikipedia:

 

1. “The event is a surprise(to the observer).

2. The event has a major effect.

3. After the first recorded instance of the event, it is rationalized by hindsight, as if it could have been predicted; that is, the relevant data were available but unaccounted for in risk mitigation programs. The same is true for the personal perception by individuals.”

 The Bird Will Land

So, by its very definition, a BSE is something very particular, whose effect is immediate.  This is key though: due to its unexpected form, it’s also a creature that the BSE hunters didn’t have the proper gear to detect in the first place.

Now, perhaps some folks look so hard for BSE’s, because they simply want a claim to fame, right? It’s the same reason that precious metal commentators keep foolishly trying to “call the bottom”: if they happen to be successful at it, they may reap some credibility as a reward(the flipside of that has been painfully true lately).

It apparently doesn’t work that way.

For the last 5 years, I’ve watched some of the smartest men in the world, whom I really respect,  cry “Black Swan!?” many times.

The thing is though…it never was.

I know they meant well, and there’s no doubt many of these events in normal times, and in a normal world, could’ve spelled disaster and the end for business as usual.  These are not normal times though, and this is not a normal world.  In fact, I’ve never seen markets more artificial, and as strongly locked-down as the ones we’re witnessing right now.

False Alarms

In case some may have forgotten them, I’ll conjure up some memories of crucial events, past and near-present, that many were sure should’ve been the BSE.  For instance, varying folks(including myself, at times) thought that:

The repeated failures of Fortis and Dexia bank were the BSE.    

They thought the Greek CDS “trigger”, in March of 2012, was the BSE.

Some thought that the German High Court’s hearing on whether E.U. bank bail-outs would be permitted, was the BSE.

They thought that the ugly LIBOR Scandal, on July 4th, 2012, was surely the long-awaited BSE.

They thought the failure of MF Global was the BSE.

They thought the German Gold Repatriation was the BSE.

They thought the launch of Operation Twist I & II was the BSE(after all, the Fed would lose control of the stock and bond market if they stopped QE, right?).

They thought the resumption of QE3 was the BSE.

They thought “QE’4ever” was the BSE.

They thought the Cyprus bail-in was the BSE.

They thought the threat of taper was the BSE(after all, just look at that 10 year yield double!  This has got to be the Fed losing control!).

They thought that the actual taper was the BSE(after all, just look at that 10 year yield fall again so fast! The Fed has lost control!).

They thought the Crimean Referendum was the BSE.

They thought the war in Ukraine was the BSE.

They thought that the end of the London Silver Fix was the BSE.

They thought the Argentine bond default/CDS trigger was the BSE.

I could name many others, but at this point, it’s all very clear that none of those events were the appearance of the Bird. Now, understand, I’m not saying these were meaningless events, on the contrary, these and many other events like them, are the countless thunderclouds that are building the pressure necessary for the proverbial lightning bolt which will, one day, trigger a cleansing fire, burning away all that was fraudulent and contrived.

It’s just that the very concept of the BSE, renders it a great shape-shifter, which never visits a people the same way twice.  This makes predicting in what form the bird will take flight, a nearly impossible task.

Unintended Casualties

There’s a greater problem though, in trying to be the first to cry, “Black Swan!”: namely that many of those who’ve waited patiently for its coming, have now grown despondent or have lost faith in what they know to be true.

I can’t tell you how many stackers are just weary in their souls.

It’s not simply the price action of their metals that has done this, either.   That’s definitely a factor, but what no one else has put their finger on, is that this weariness is from chasing their own tails, every time the next precious metals commentator swears that this time, the Swan has truly landed.

Precious metal investors have long been second-guessing themselves, due to false alarms. Many, many false alarms.  They are, quite honestly, shell-shocked.  Even the mention of the next “event”, now simply makes them angry, both at those telling them about the importance of the events, and at themselves for “believing this stuff in the first place”.

They are the child still waiting for Santa, but it’s no longer 9:45 p.m., but rather 5 in the morning.  The child’s eyes are blooshot, his arms are crossed, his brow is wrinkled, and his lips are pursed. They’ve gone from this:

Waiting-for-Santa-Claus-1-600x450

To this:

 

charlie-brown-and-snoopy-show-great-pumpkin-sally-angers-linus

They feel jaded.  They feel foolish.  They feel betrayed.

While I totally understand and empathize with those feelings, they’re forgetting to set that anger in the rightful place: right at the feet of the board of directors of the Federal Reserve.  They are failing to channel and harness that anger and outrage, and use it for something positive, like stacking.

The thought never occurs to many of them, that if they simply put even a little bit more into gold or silver at 30% and 65% discounts, respectively(from their highs 3 years ago), that their investment cost in those metals would take a dramatic plunge.  They fail to see that they could become much stronger hands than they are now.  None of that matters to them anymore, they’re tired of “being played”, by their emotions, and by “shysters”.

In fact, for many of them, stacking is now the last thing on their minds.  Like Linus in the pumpkin patch, many are now simply waiting for the next miraculous rally, so that they can mercifully dump those positions at the prices they bought them at.  Many will sadly do this too, just as the Bird lands, and the Great Flood washes everything else away.

For the sake of many weaker stackers out there, it’d be refreshing to see commentators shy away from using the term “Black Swan” for awhile.  After all, no one will have to ask when the Bird has landed.  It will be self evident.

 What the Real Shysters Will Do

There’s one last consideration that needs to be addressed here, and that’s how the behavior of the true shyster will manifest itself when the BSE finally does arrive.  We don’t have to wonder what that reaction will be either, all we have to do is look to a similar BSE in the past, to see how the frauds reacted in the moment.

For me, I think it’s obvious that the last truly terrifying BSE were the triplet failures of Bear Stearns, Lehman Brothers, and AIG.  It all started with Bear though, that was the initial landing of the Bird last time.  The panic was real and palpable.  Everyone knew in their bones that this was “it”.  Even folks on the street, who were almost completely illiterate in things financial, knew that this time it truly was different, and they acted with haste.

Bank runs had begun.

It got so bad, that the bankers trotted out their big guns: like snake-oil salesmen, ole Jimmy Cramer! One of the classic clips of him during this time, had to do with the Bear Stearns failure, and what investors and depositors should do about it.

I won’t tell you about it though, I will show you!  It’s just so fun to roast this disingenuous guy on a spit!  It never gets old, so grab your popcorn, and watch this jester do his thing!

Bravo!  Great stuff there, Mr. Cramer!  Why guys like him haven’t been run out on a rail by the countless people who’ve been burned to a bacony crisp by such advice, I’ll never be able to explain.

Of course, this is what happened to Bear Stearns’ share price just after his warning not to “be silly” and sell at $63:

Bear Stearns

Helloooooooo Zeroesville!

By the way, anyone by now, even still listening to shills like this, for any other reason than pure entertainment, deserves the inevitable pauper-hood which awaits them.  People like him don’t work for you, they work to enrich and protect the current system, and the banks who run it.  That’s the entire reason his show exists.  Don’t allow yourself to be played by the real players, like this guy, who are all screaming at you to “buy Dow 17,300 with both hands!”.

And for heaven’s sake, stop calling the precious metals analysts “frauds”(the Eric Sprotts, the Craig Hemke’s, the James Turks)!  None of them are frauds.  A man of truth tries to bring serious problems to light, and warn you about them, while a fraudster tries to bury them!  The real frauds did it before, and they will do it again!

Conclusion

Remember, the critical thing which typifies a Black Swan Event, is its complete and utter surprise to even those looking for it.  You will find some commentators willing to go on a Black Swan hunt.  Some do so hoping they can have a claim to fame. Those commentators may not know it yet, but it will end up being a Snipe Hunt.  Don’t go along for it.  Preemptively identifying a BSE before its apparition, and ensuing fall-out has occurred, is a highly improbable thing.

You will grow discouraged, if you go along for this impossible hunt.  Sit it out.

During the past 5 years, I’ve seen learned, respectable men ask dozens of times: “Is this it?  Is this the BSE that will initiate the end of the financial system?  No?  How about over here, then?”

Hear me: if you have to ask “is this it?”, then it probably isn’t.

You won’t have to ask, and no one will have to tell you when “it” has landed.  The moment the Bird has landed, you will feel it in your bones.

“Este Paratus”, is latin for the Boyscout Motto “Always prepared” or “Be always prepared”.

Preparedness is an excellent state of being, isn’t it?  We should always strive for it.  Don’t get scared, get prepared.  So yes, certainly be watchful, and ready, like the noble boy scouts, like the Watchman himself, but don’t go chasing every event, asking or thinking “this is it”.

BSE’s are indeed on their way, perhaps a whole wedge of them.

The unsettling thing about Black Swan Events though, which makes the hunt for them so silly, is that they aren’t the prey, you are.  You don’t hunt them, they come hunting you.

Unlike for poor Linus, of Peanuts fame, or for the discouraged stackers who gave up in despair, this won’t end like the watch for the Great Pumpkin.

The Swan is real, and it is coming, just don’t bother looking for it.

Simply be ready for that eventuality.

To be continued, in Part 4

-Wealth Watchman

Mexican LIbertad SDBullion

Top