As we embark on the new year, there’s been a renewed interest in a potential black swan event on the horizon. Historically speaking, the term gets its derivation from a Latin expression; its oldest known occurrence is from the 2nd-century Roman poet Juvenal’s characterization in his Satire VI of something being “rara avis in terris nigroque simillima cygno” (“a bird as rare upon the earth as a black swan”). Author Nassim Nicholas Taleb recently used the concept in his book “The Black Swan.” It refers to an event that is rare, unpredictable, and has severe and widespread consequences. The concept is used to illustrate the limitations of forecasting and the inherent uncertainty in complex systems. There are three criteria that define a black swan event. The first being the event is initially a surprise, (2) the event has a major effect and (3) the event is rationalized by immediate hindsight, as if it could have been expected.

Examples of historical events can be categorized into many types, and the following examples focus on economic events: the 1929 stock market crash, the 2000 dot com bubble collapse and the 2007-8 financial crisis that caused Lehman Bros. to fail. Other types include the sinking of the Titanic, which was purportedly unsinkable, 9/11, the internet and the fall of the Soviet Union.

So why the emphasis on these types of events in 2024? Unfortunately, there are too many things going on – conflicts in the Ukraine, Middle East and other countries that are or about to be engaged in confrontations that could quickly escalate, the commercial real estate (CRE) situation with almost one billion square feet of vacancy, technological unintended consequences with the proliferation of AI, biological threats, migration of millions of minimally vetted people into the country, a potential for an assassination of a global leader, a civil war breakout and global cybersecurity threats.

We believe the key word for all the chatter about a potential black swan event this year is due to the increase in uncertainty that exists around the globe. Keep in mind that black swan events can’t be predicted but reveal themselves post the occurrence. If this is a topic that interests you and you want to learn more about black swans, watch for an upcoming article in the CRF Journal authored by our Senior Research fellow Dr. Steve Isberg.

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