Tuesday, March 15, 2011

Blue Birds and Black Swans

Years ago while working in marketing, I learned the concept of 'bluebirds'. The sales staff had their annual plan for meeting sales targets -- what projects were anticipated for which large customers, and how they would 'win' the project. Any large sale that was not in the plan carried the label "Bluebird.' Perhaps from Bluebird of happiness, this was an unanticipated or unplanned positive event.

Most of us have had that experience -- anywhere from finding a $5 bill to winning the lottery or being selected for a job we thought we had no prayer of getting. Consequences of a bluebird are usually positive -- paying bills off or just feeling good.

The opposite phenomenon is a Black Swan -- an event beyond reasonable anticipation or probability. Personal Black Swans can be the unexpected layoff, the need for a root canal (see previous post!) or being hit by a bad driver.

The increasingly common use of the term is for larger scale events-- at the national or global level. Recent examples in the US would be the 9/11 tragedy or Katrina hitting the gulf coast, though I'm not sure how well Karina fits -- it was reasonably foreseeable that some day a major hurricane would hit New Orleans, so is it a Black Swan if it hits during your lifetime and the levees fail as well??

I've started to think of these on the Black Swan Scale (I think my own invention), sort of like the Richter scale for earthquakes or Fujita scale for tornadoes. A '1' would be noticeable enough to be called a Black Swan, but the event is localized with impacts that are non-persistent (time-wise) at a national or global level. A '10' would be devastating and persistent -- think major asteroid strike with extinction level impact. OK, I'll admit, this line of thinking has resulted from the unfolding of the Japanese earthquake.

So what are some examples: I'll start from the impact of 9/11 -- factors of sudden and reasonably unforeseen, loss of life and some persistent economic impact to the US and globally -- probably a '2' on the Black Swan scale.

The Tsunami of 2004 seems like a '3' to me -- very unexpected, huge loss of life, minimal impact on the global economy.

Japan is only starting to unfold. I'm thinking that the earthquake alone --well above what anyone expected in our lifetime -- would probably have been a '2.' Add the tsunami -- defied the predictions for arrival time after a quake so greater loss of life -- maybe into '3' or '4' territory? The unanticipated failure of all reactor management back-up measures, causing the nuclear release and long-term power supply issues, may bring the series of events up to a solid '4.' The evolving impact on the global economy is starting to look like it may easily bump up into '5' territory. Already markets are adjusting downward and precious metals prices are falling.

How will it impact us as the Japanese stop buying US treasury bonds? What other tentacles of these events will tickle the world economy? Who knows -- Black Swans are an adventure into unknown territory.

So how do we define the Black Swan scale? What are your ideas of some historic examples and where they would fall on such a scale?

As for the current one, hang on to your hats, it could be a wild ride!!