Is Donald Trump’s Election as President of the United States a Black Swan Event? If so, What Effect will it Have on Wall Street?

From Our Owatonna, MN Correspondent

According to the website Investopedia, “A Black Swan is an event or occurrence that deviates beyond what is normally expected of a situation and is extremely difficult to predict. The term was popularized by Nassim Nicholas Taleb, a finance professor, writer, and former Wall Street trader. Black Swan events are typically random and are unexpected.”

Examples of recent Black Swan events are the financial crash of the housing market of 2007-08, the dot.com bubble of 2001, and the implosion of the Russian government’s debt through default in 1998, which led to the bankruptcy of the previously successful hedge fund, Long-Term Capital Management (LTCM).

Trump’s victory was not completely unexpected since his poll numbers the day before the election gave him a realistic chance of winning, but his overthrow of the Republican Party establishment, let alone his victory, certainly could not have been predicted even one year ago. For someone with no military service and no previous political office to win the presidency in his first attempt is unprecedented in American history and qualifies as a Black Swan, at least politically.

Wall Street stock futures reacted wildly overnight after polls closed, which implied a high degree of uncertainty about a Trump presidency. His threats to build a wall on our southern border, tear up trade agreements, abandon NATO, and other “outrageous” positions (according to political insiders, anyway) may indeed throw the U.S. economy into chaos. And as the U.S. economy goes, so goes the rest of the world, even though China’s economy is larger than the U.S. economy.

Stock markets may fluctuate wildly for weeks or months, but there seem to be too many entrenched institutions that will resist dramatic changes in government policy—fiscal or monetary—to allow for any economic catastrophe to occur. Yet, Trump defied the odds and came from nowhere to secure the most improbable election win in the past century, if not in the history of the country. It remains to be seen whether his Black Swan legacy will cause permanent harm to the world economy, but it’s a possibility. And since Wall Street profits no matter if clients are buying or selling, they will always find a way to come out ahead in the long run.

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