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Uncertainty and Black Swans

Sigma Investment Counselors

December 14, 2010

We continue to hear about the struggles of our economy due to “uncertainty.” Much of the criticism towards Washington focuses on this “lack of certainty.” Businesses have been crying that this lack of certainty regarding regulation and taxes has postponed plans to spend and hire, resulting in growing amounts of cash on their balance sheets.

Confidence levels change, but according to the National Federation of Independent Business Optimism Index, U.S. business owners are feeling more confident now than any time in the past three years. At the same time, the Federal Reserve estimates that U.S. companies are sitting on nearly $2 trillion in cash. What is keeping them from deploying that cash? Is it really “economic uncertainty”?

I’m having difficulty digesting this “uncertainty” explanation. In fact, as hard as we try to protect our portfolios from negative outcomes, there are always “Black Swan” events lurking around the corner that may take us by surprise. Can someone find me a time period where Americans have ever had economic certainty? The only thing we can be certain of is uncertainty. This is why portfolio diversification is so important.

On a personal note, and speaking of Black Swans – I saw the Aronofsky film of the same name last weekend. It’s a modern thriller based on the Swan Lake story. Natalie Portman does an amazing job portraying a psychotic ballerina. It’s the most Oscar worthy performance I’ve seen in a long time. I give it two thumbs up.

Marisa A. Lenhard, CFA

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