Skip to content

July 23, 2011

Now there is the “Neon Swan”

Jason Zweig discusses a new type of threat in his July 23rd column in the “Wall Street Journal”.  His definition of the neon swan is “…an event that is unmistakably rare, immensely important and blindingly obvious.”  He questions if we are capable of protecting ourselves from a “neon swan”.  It probably is obvious that he is referring to a default or downgrade of U. S Treasury debt.  
When looking at the markets, he wonders if many investors are coping “simply by closing their eyes.”Mr. Zweig relates a conversation with Theodore Aronson, a partner of an investment firm.  Mr. Aronson indicated that “…his firm hasn’t done anything to protect against the risk of a crisis in the Treasury market.”  Although they have thought about it, his firm didn’t “…know what to do….” 
The article also quoted William Bernstein of Efficient Frontier Advisors, “It is absolutely inconceivable that we would flat-out default and not pay anything”.  His concern is the “…ripple effect…”.
Mr. Zweig notes that the worst damage to markets is generally from what is not expected.  “Waiting may well be the wisest course this time.  You don’t want to ignore a neon swan, but you don’t want to overreact to it only to have it swim quietly away.”  READ MORE 
Another article on the same page as Jason Zweig’s article discusses that the cost for protection against a default by the U.S. Treasury is increasing. 
Currently, it is more expensive for insurance for one-year “…Treasury’s than on junk rated Indonesian bonds.”  It is also close to double the cost for one-year protection of other triple-A rated nations.  READ MORE
Forgive me, but this reminds me of when I was a growing up.  The neighborhood kids would organize a baseball or basketball game.  The person who was the worst pitcher (first baseman, etc.) insisted on playing that position.  If he didn’t get his way, he would take the ball and/or bat and go home.  They would rather destroy the game than not get their way.  

Back to Top

Share your thoughts, post a comment.

You must be logged in to post a comment.