52 comments on Have Oil Prices Bottomed Out?
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52 comments on Have Oil Prices Bottomed Out?
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I think the idea of Black Swan events has been watered from the original concept. Black Swans are no longer identified with out-of-the-ordinary events, but rather with wilder swings in various metrics than we have been historically used to. That is why I see the term "Fat Tails" used more often than Black Swans to describe this kind of behavior. The Fat Tails refer to variances that are outside the parameters of a Gaussian/Normal distribution (as the example typically used to compare against, i.e the Black-Scholes model assumes derivatives about a normal).
Oil depletion as practiced here on TOD is a case in point for doing the analysis correctly. The model I have been pushing for discoveries and reserve growth, Dispersive Discovery, has super fat tails that even a curmudgeon like Taleb would appreciate. The concept of dispersion pushes a huge amount of uncertainty in the model and you get the results of curves like the Logistic for global discovery and "hyperbolic" for reserve growth. For certain, we are not making the same mistakes here that the dickhead quants have done in the financial markets.
BTW, Jon Stewart is my new hero, watch this swing:
http://crooksandliars.com/john-amato/jon-stewart-creams-jim-cramer-daily...
Yes, if you can see that there are factors that could result in a massive increase, it's more like one of Taleb's 'Grey Swans' than a true black swan. A real black swan would be something more like some revolutionary energy discovery that is easily implemented quickly on the existing infrasturcture causing oil to become worthless, or perhaps a meteorite strike on Ghawar disrupting a large portion fo supply.
In some ways, the invention of the shadow banking system was a black swan event, although that's a bit of a stretch. But yes, the term is overused nowadays.
One would also have to consider the "alignment of the stars" kinds of situations, when a great many low probability events line up or an event occurs that exposes other dependent events. That has more to do with interactions amongst behaviors than a truly remote "unknown unknown". The Madoff Ponzi scheme is a case in point; last year's crash exposed this whole situation, so no one can really isolate that as a Black Swan event either. If it would have happened during good times, the world economy would have swallowed that up as a blip. People knew about the shadow banking system, so the fact that it finally got exposed to a great number of people through the financial crisis (chicken or egg, I know) so I agree that it is perhaps a stretch to consider that a Black Swan. Lots of people pointed out that it would turn out chaotic and would lead to wild swings into fat tail territory.
But then again, it shows the basic futility of trying to predict processes that rely on human psychology, such as financial markets.
Far from being a Black Swan, that's easily explained by human nature. Our greed and hubris make us susceptible to financial bubbles and various other get rich quick schemes. Without regulation and enforcement to keep us in check, financial markets will default to bubbles and crashes.
We are warped from birth, true human nature hasn't been seen around this joint for eons. Greed and hubris are learned qualities. Not to disagree with your point about them being our current susceptibilities though.