The 5 Black Swans That Keep Dylan Grice Up At Night... And How To Hedge Against Them All

Tyler Durden's picture

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NOTW777's picture

"With all the hoopla over Egypt some have forgotten that this is merely a geopolitical event"

its not "hoopla" to those dying and suffering


"we were delighted to find that Zero Hedge is not the only entity that believes that providing traditional annual forward looking forecasts is nothing more than an exercise in vanity"    so? couple pages of vanity

Tyler Durden's picture

"It's priced in" - also, Zero Hedge has more than its fair share of "picture only" pieces for the vanity challenged.

asteroids's picture

I call Bullshit. Those that fail to learn the lessons of history are doomed to repeat them. The FED knew there were going to be unexpected results to their money printing. They are causing inflation but want no blame for the turmoil and strife. What cowards. I see a generation retiring in poverty.

NOTW777's picture

BTW - not complaining, just sayin the author set himself up

topcallingtroll's picture

The vanity is often short lived, but fun while it lasts.

NOTW777's picture

buying commodities = "equivalent to selling human ingenuity"


or selling human weakness and bad judgment

tickhound's picture

The other side... from the hollowed canoe, to the steam engine, to plastic wrap, to the cell phone... human ingenuity seems to work well with materials.

blindfaith's picture

you can have all the ingenuity God can grant you, but if you can't afford to buy the commodity/materials to create the product, you are screwed....dead in the water, sold out, dream lost, enterprise failed.

Speculators who drive up the cost of general commodities create nothing, destroy creativity and ingenuity...look at the thousands of companies closing and folks out of work because the price of base materials/metals has doubled and tripled since THIS summer. You just haven't seen the damage yet or you don't want to!   

Will you mad because that new central AC is 50% more than last year's estimate?  How about that bag of chips being 12 0z instead of 16 for the same price?  And, don't you just love paying more at the pump and that nice new business suit you had your eye on is now $300 more....and you can't understand why.

I agree with the author, buy Gold and or silver if you need to 'invest' in commodities.

Vint Slugs's picture

buying commodities = "equivalent to selling human ingenuity"

That observation is profound.  In the 213 years since Thomas Malthus published his Essay on Population in 1798, commodities prices in real terms (inflation adjusted) have declined.  That directly contradicts Malthus's theory that populations grow geometrically while natural resources stay constant or, at best, grow arithmetically (meaning that natural resource costs should ultimately limit population growth).  Why?  Because of human ingenuity.  Technological development has cheapened the cost of obtaining natural resources be they base metals in the ground or grains in the field.  Grice doesn't want to bet against man's smarts; he's got all of history on his side.

1984's picture

Yeah, yeah.  But that's long term.  What about in the next few years, when buying commodities = selling the Bernank and the CNY peg?

bernorange's picture

Wars have a tendency to cut back on population growth.

Kim Jong-Il's picture

The time period you reference coincides with the discovery and exploitation of cheap fossil fuel energy resources.  

ShiftCTRL's picture

"Nations who move on do so when their people say enough is enough, even if it is unpopular at the time."

Unrelated, but a good piece.:

Kassandra's picture

I find it morally repugnant to profit off the backs of the revolutionaries...therefore, I am usually broke...but I sleep well.

strannick's picture

I found most of the revolutionaries I saw at university morally -or maybe asthetically?- repgugnant.

Only cause they were such manipulative, elitist, pompous, whiny, useless bigots; who pretended to be broke, while cashing trust fund checks. 

Where I slept well was in the classrooms next to the revolutionaries during the lectures from the grey, bald, radical armchair theorists who trolled for undergraduates.

dick cheneys ghost's picture

who will benefit the most from all this unrest in the middle east?


the IMF? the world bank? or the radicals

Cdad's picture

who will benefit the most from all this unrest in the middle east?

Answer:  principled people with common sense.  This isn't a Middle East issue.  This is a world wide banker issue.  Common sense has been dictating for months where we are headed with all of this debt issuance nonsense.

The clock is now running on Ben Bernanke.  The sooner he is removed from his station, the less the suffering will be.

Kassandra's picture

principled people with common sense...


This IS a world wide issue. Thank you for putting it so concisely.

treasurefish's picture

Too bad this is not common knowledge. The Egyptians are actually revolting against the US FED.  They just don't know it.  What they do know is that all the tear gas cannisters and rubber bullets are stamped "Made in USA."  Bush and Obama must be so proud.  Not only is it free advertising of police-state goods against sovereign-risk, but each weapon utilized equates to another American job saved. God bless Amerika.

Hephasteus's picture

But those are freedom rubber bullets and we love you so much we cry about it tear gas!!!

Misean's picture

This is almost as good as reading Super Bowl betting strategies. Too bad capital markets have been turned into casinos by central bank fiat...

MsCreant's picture

These posts are above my head in the sense that I probably miss about 15% of the message because I am NOT a trader and cannot relate to these specifics. I am okay to stretch and try to grasp it. But it is because I cannot grasp it all that I am simple, pulled out of the stock market, and in PMs and cash. I am a lamb to the slaughter, but I have a feeling it is less slaughter than many. 

Thanks Tyler. You are loved. Keep bringing it.

I know of no where else to go that will let me in the door and keep presenting such a wide variety of materials with varying levels of accessibility.


NOTW777's picture

such prognostication should be anathema to a trader.  inherently one will be biased to his or her own predictions.

i agree with you that tyler is amazing.  i see the ripple effects of ZH all over.

it is further emboldening others to tell it like it is.  its amusing to go to other blogs and cites and see ZH info repeated (sometimes with attribution, sometimes not) and or see it leak though to some in MSM who use telltale phraseology

kokoro33's picture


you see ZH regurgitated all over everywhere

pathetic weasels can't come up with their own material

especially the "pay board" weasels

saulysw's picture

Project mahem at work.

Dr. Sandi's picture

I know of no where else to go that will let me in the door and keep presenting such a wide variety of materials with varying levels of accessibility.

Have you tried JoAnn's Fabrics? Some of the good stuff is intentionally placed just out of reach on the higher shelves.

Jasper M's picture

HAhaha haha! +1

I wov you, Sandy.

topcallingtroll's picture

you know mscreant.  10 percent of those assets into an intermediate term corporate bond fund and ten percent of those assets into stocks would make you a nice little portfolio with less volatility than cash and gold alone, and probably a much better return.  You really can control volatility and improve your return.   YOu can dollar cost average into an intermediate term corporate bond fund from Vanguard and a total stock index fund from vanguard also.  Do it over 12 months.  TD it might be really good for you to go into basic portfolio theory at some point.  A lot of these gold and cash people could sleep well at night with ten to fifteen percent bonds and ten to fifteen percent stocks in their portfolios.  they would be amazed at the volatility reduction and likely improvement of returns.  I don't think even TD could be against diversifying a little bit from cash and gold. I know you don't really make portfolio recommendations but having one of your contributors doing a primer on portfolio construction volatility and expected returns would do a great service for some of your readers.

Panafrican Funktron Robot's picture

This is pretty fucking awful advice, but I assume this is intentionally (sarcastically) so due to the username. 


buzzsaw99's picture

Those plays all require doing business with wall street maggots. Pass.

Who is John Galt's picture

Right on Buzz.

I have comitted myself 100% to "going Galt"

I may not end up rich, but I'll be damned if I will contribute to "their" riches.

RockyRacoon's picture

Ditto, Buzz.  Thanks for saying it.

Yen Cross's picture

I adore the vernacular edicucate in this post.

Jasper M's picture

Tyler sets this one up with better eloquence than most of hist posts, and I was all ready to applaud. Alas, the author, in his very first exercise, reaches into the derivative bag of tricks, pulls out a deflation hedge . . . and then proposes to take the other side of it.

I almost stopped right there.

But, in his 'defense' (?), his choice of asset is flawed to begin with. He does not mention counterparty risk. In a robust deflation (and can we expect any other kind now?), exactly whom would you rely on to keep standing, when you buy the contract from them? BoA? JPM? UBS? 

Well, Tyler is still holding his breath waiting for WTI to get back over $100/barrel, and silver to get to back to $31. And maybe they will. But until then, clearly his choices for best advice  will not reliably coincide with mine. 

Ricky Bobby's picture

+10 If any of those fat tails come to pass will he get paid? How do you measure that?

sschu's picture

Interesting that the Egypt thing was so unexpected, yet nothing like this is mentioned on his list.

The real Black Swans are geo-politcal events that can change everything.  911 was such an event, the collapse of the Soviet Union another example. 

An angry and aggressive China, making a move on Taiwan would be a game changer although not necessarily a surprise.

A list of these would be more interesting than the standard inflation/deflation guesses.


chump666's picture

the problem with a AUD 10yr swap, is that Aust yields should go into hyperspace on a China crash, at the moment Aust bonds are paying a premium cause of the housing bubble.  Asia currently has a bond and a CDS bubble, so the swap to quality would be a challenge as most Asia yields will be high/er.  Singapore bonds may be attractive for quality wise, but if China goes it should take out Singapore/property market.

Best bet, short the AUD, rates may have to be cut on a housing market crumbling and the government struggling to issue bonds/CDSs blowouts (floods/cyclones). 

gwar5's picture

On the bright side there's always a future, no matter how surreal.

For a glimpse of ours, here's David Lynch's "Eraserhead",  the (Oscar snubbed) Black Swan of movies, set to ELO.

YouTube - Mr. Blue Sky - ELO (Eraserhead)

Nothing but blue skies, boys.




chump666's picture

...question is, if the middle east goes into a debt/fiscal crisis from Egypt, who will bail it out?  CDS have widened on Asia last week or so.

So it won't be China this time lending assistance

Possibility?  Oil going to 150 real quick.


topcallingtroll's picture

Wow!  Excellent article!  The old TD is back!  This is at least worth a small donation and a coffee cup and a T shirt!  Spy puts were fairly cheap up until recently if you want to hedge a little more of the deflationary risk.  I haven't priced them recently but suspect they have gone up.  The gdp percent of corporate profits is still at record levels and we are probably going to have a little mean reversion here and some tough times ahead.  I tend to lean toward the deflationary side of things at least at the moment but am totally in touch with my inner woman and reserve the right to change my mind at any time even before I finish typing.   In fact what you have recommended is really almost a collar, except that it is skewed against deflationary risk.  A person could construct a synthetic portfolio from this, and many do.  YOu would really impress the hell out of me if you would show us step by step how you would construct a synthetic protfolio out of this and it's parameters such as Beta etc, along with the geometric mean expected returns.

savagegoose's picture

my tope 5 black swans

1 solar flare

2 meteor impact

3 mid atlantic tsunami

4 yellowstone volcanoe

5 me winning powerball

except 5 is prob the least likely

Yen Cross's picture

I'm going  regress Mr. Savage Goose. But I suspect you like Solar Angels. (sans)  Judas Priest.

savagegoose's picture

yeah i have an apocalyptic vision, that hopefully comes before i die.but  it isnt human created , we just die like the ants we are. as the  blind and stupid god of the universe swings around his hammer in a random acts of destruction and renewal.

but not sure im with you on the solar angels thing. i looked up the music , based on nostradamus.


sure mankind could survive an apocalytic event if we all pulled together and managed to get off this rock. but we're too busy fucking ea over for a percentage for that to ever happen.

but i didnt even mean total destruction in my black swans , just enough to disable modern civ. thats pretty devestating.

after all who cares about black swans if we're all dead?


Yen Cross's picture

I'm going  regress Mr. Savage Goose. But I suspect you like Solar Angels. (sans)  Judas Priest.

serotonindumptruck's picture

You left out the return of our own Sun's (Sol) brown dwarf companion star (Nibiru).

According to the Sumerians, Babylonians, Egyptians, Mayans, and the Hopi, to name only a few.

Even the Christians have a name for it.


Theorized amongst theologians (pun intended) that Wormwood, which returns to our vicinity of the solar system approximately every 3,600 years, was responsible for the Biblical story of Noah and the Great Flood.

Pole shift of the planet is a cataclysm that can be difficult to imagine.

The return of Wormwood is imminent. 

savagegoose's picture

niburii yeah populated by reptile people who can shape shift and that live among us, ocupying posistions of power. legend has it gold brings them immortality. a small few  transmigrated during the last encounter of our worlds.

nah i dont count bullshit scifi stories, just   disasters that have empirical evidenceof happening before. ones that maybe need a bit more spent on them than androgenous globull warming. but you get me off on a rant.

fact is black swans are more than a bunch of rich doods lose a crap load of money. its people starving cities dying, mass migrations, whats indonesia got 250 millions, australia 20,  theres a migration pattern that would only be stopped with nukes, and we dont have any!  sure maybe in a black swan disaster that 250 gets  cut to 125 mill.

but theyre still comeing and theres still a crap load of them.