Neon swans - "unthinkably rare, immensely important, and blindingly obvious"

 

We have heard about Black Swans, White Leopards, and Grey Rhinos. We should now add Neon Swans to the current list. This animal is an older concept from Jason Zweig in a 2011 WSJ "Forget About Black Swans, the One Floating Ahead is Neon".

The neon swan, according to Zweig, is "unthinkably rare, immensely important, and blindingly obvious". For example, an energy policy failure could be a neon swan. An energy crisis would be rare. It is important to our economy, and it is obvious that we have a problem with the current direction. 

Any issue that we kick down the road could be considered a neon swan. We know that a crisis will be rare, important, and obvious. Problems with social security funding and pensions may be neon swans. There is a neon swan with the large government debt build-up. The impact of a major financial crisis from rising rates could be a neon swan. A crisis may be rare since we have not had one, yet these economic issues are important and obvious. 

The issue which could be in dispute is whether these neon swans are rare. There may be a lot of neon swans, we are just not willing to accept that they are in the pond. We would like to ignore these neon swans given there is a high level of uncomfort associated with them. They are close to the grey rhinos in characteristics, yet these swans are more glaringly obvious. Markets certainly ignore them; consequently, trying to protect a portfolio from them will be costly in the short-run. 

Other writing on swans:

 

An Animal Kingdom of Different Risks - White Leopards, Grey Rhinos, and Black Swans

Black swans and white swans - managed futures