"A human being should be able to change a diaper, plan an invasion, butcher a hog, conn a ship, design a building, write a sonnet, balance accounts, build a wall, set a bone, comfort the dying, take orders, give orders, cooperate, act alone, solve equations, analyze a new problem, pitch manure, program a computer, cook a tasty meal, fight efficiently and die gallantly. Specialization is for insects." -- Robert A. Heinlein

Couple more days like today and many investors just might feel like dying - gallantly or otherwise.


While front month Crude Oil continues to slide, later month delivery contracts are not falling very much. Front month might be down $14 from its peak, but crude for December 2010 delivery is no more than $3 or $4 from its high. Why? Lots of reasons. Here is one possibility...

Over the next several years the market, by necessity, must "discount" (take into consideration) a "Black Swan Event".

Here is a definition from Wikipedia.org:

"In Nassim Nicholas Taleb's definition, a black swan is a large-impact, hard-to-predict, and rare event beyond the realm of normal expectations. Taleb regards many scientific discoveries as black swans—"undirected" and unpredicted. He gives the September 11, 2001 attacks as an example of a Black Swan event."

I have been harping on Natural Gas ("NG") lately, and with good reason (see my earlier posts). Now, apply a significant hurricane in the Gulf of Mexico, a terrorist attack, or maybe even an accident like a LNG tanker explosion and NG is $50/MMBtu instead of $8/MMBtu. No, you cannot invest in the hope that a "Black Swan Event" ("BSE") will strike, but you have to insure your portfolio because, I can assure you, a BSE will occur at some point in the future. This is one of the primary reasons portfolio theory insists that investor's diversify.

No, you can't plan on a "BSE", but you can "tilt" your portfolio into the areas that are attractive now and would hold or increase in value if one of the more likely BSE were to take place.


Mentatt (at) yahoo (d0t) com