The Black Swan

So the Fed came to the rescue. Sort of. Dropping the discount rate by half a percentage point. Pretty much everything rallied today. Now debate turns to do this mean the Fed will cut the federal funds rate in September or even before that? If that happens look for a rally to end all rallies. Some speculate we might even a Federal funds rate cut as early as Sunday night before markets open on Monday.
So much has changed in the space of a week in the markets. What the markets are going through is what author Nassim Nicholas Taleb would no doubt term a "Black Swan" event. I've been reading "The Black Swan" off an on for weeks now. It's a hard book to read in some fell swoop. Or maybe it's that I just don't have the time so wrapped up I am in the Wall Street Journal these days. What a newspaper. But I digress.
"The Black Swan" is a must read for any financial journalist. Reason for the title by the way is before they discovered black swans in Australia the assumption was that only white swans existed. Lesson there is, don't assume anything I guess.
Nassim hits on a few areas that ring true for me personally. The fact that experts will predict with seemingly unflappable confidence predict that a certain event is sure to happen e.g. oil prices are sure to go higher, interest rates are going up this year, blah blah blah. Yet turns out the so-called experts are wrong as often as they are right. So where does that leave the investor? Tons of other insight such as the tendancy of people to look for confirmation of what they assume to be true, rather than searching out evidence that might undermine a particular way of thinking. The central tenet though is every once in a while a "black swan" event. happens. And unforseen event that basically knocks everyone on their ass. Subprime contagion anyone? Critically Taleb lays out why and how people should prepare for "Black Swan" events.