Once I was watching a programme in Discovery channel on chimpanzees. Like many animals (and humans?) chimpanzees also live in communities. They hunt together, gather food together and warn each other of any dangers. Each community is led by a leader. Any perceived challenge to the leadership is met with brutal attack till the challenger shows the body language of submissiveness. However, one day the incumbent will lose power to a challenger.
Humans are no exception. Human history is full of stories of brutality for the sake of power. Many human societies (called countries) even in the so called modern times of today - recent examples include Libya, Syria, Bahrain - attempt changes to leadership (or preserve leadership positions) through brutality.
But in certain human societies mainly Europe, North America and some parts of Asia, the community leadership changes no longer occur based on brutality. Challengers are given more peaceful means of 'election' to challenge the existing leaders. But we need to remember that not so long ago; Europe also followed the path of brutality to enforce change in leadership.
Interestingly, there are other common elements in the animals living in communities and humans, other than leadership. Interested readers may wish to explore more on this topic. However, the human societies are much more complex and have two distinct elements which animal kingdoms can never boast of - religion and money.
Various religions dominate different regions of the world. In certain communities (or countries) religious leadership takes the role of community leadership. If religion is strictly enforced, the society faces a big problem. Almost all religions do not tolerate challenge against their religious laws. In countries where religion is strictly enforced, the kids are trained only in religious laws. So the community is always forced and brainwashed to think 'within the box' stifling creativity and progress. If the religion is separated from community (state or country) leadership, then at least a few will dare to think 'outside the box' unleashing invention, creativity and progress. That is why countries such as Japan, Korea and West comes out with innovation after innovation. Let us hope the current MENA revolution will do what French Revolution had done for Europeans. However, at this point, when I write this blog, it seems that Egypt (equivalent to French during their revolutionary period) leadership will be taken over by the dominant religion (Muslim Brotherhood) who will force the community to think and act 'within the box' with predictable results & with no hope of creativity or innovation. Egyptians, who want to enjoy the flagrance of freedom, will continue to try to escape to the West. Let us hope Egypt will become a role model for the rest of MENA by electing a non-religious leadership to guide the Egyptian community who may re-create the times of Great Pharaoh's, whose technology (e.g. construction techniques used in Pyramids, preservation of mummies, etc) still amazes the scientific world.
Another distinct element of human society is the use of 'money' as a medium of exchange, which replaced barter system (some studies have pointed out that some animal communities also follow a kind of crude barter system to exchange favours!). It is interesting to note that Russia was able to do survive its economic crisis in 1998 and brush aside any offer of help from IMF as they focused more on barter system. (http://www.richardccook.com/2010/01/10/in-time-of-crisis-barter-works-and-may-have-saved-russia-in-1998/).
However, modern human societies, irrespective of religion and race, hold on to money. Money is a common factor defining purchasing power, status, wealth and it is something all communities tell their kids to aim for. Whilst individual nations have their own currency (money)to facilitate exchange of goods & services within its borders, there is only one global currency -the mighty dollar. But it is heading towards a collapse. China and other nations who stock the paper money called dollar is already nervous and it is a matter of time that they turn against US dollar and seek other medium to store value. Americans are not producing any goods and services to exchange with the rest of the world. But they buy as much as they can and settle them in paper. Once the world stops accepting the valueless paper, American economy is doomed, which will impact the rest of the world too. A dollar collapse will bring in 10x misery to Americans than they experienced with Subprime collapse. Let us hope USA gets its act together and start exporting something really worth, other than its paper currency.
These two features of human society - religion and money - have the potential of unleash future blackswans in the medium term. If MENA region slips into further religious and political leadership turmoil, then oil price could go through roof, unsettling many economies in the world. If the dollar collapses, then only history can tell us what will happen to the US economy and all economies linked to it. Many economies are significantly dependent upon on USA as it is their major consumer market - e.g. Chinese products, Indian IT and Arabian Gulf Oil. Given the impact of dwindling population of many western economies, they also look to US markets for exports.
Given the possibility of a black swan lurking around, you may wish to protect your portfolio against a disaster scenario. Well, I think stock options may be one of the answers. For those who are not familiar with stock options, broadly it can be defined as a form of insurance, especially Put options. It may be worth to expense off cost of options while waiting for the black swan, which could in fact unleash a profitable opportunity, which actuarially could repay the cost of options many times over. Or you may explore a combination of options, wherein you place a structure by selling and buying call and put options.
Let us hope for the best, but prepare for the worst.
PS. A Word of Caution/warning: The risks involved with trading stocks, options and other securities may not suitable for all investors. Prior to buying or selling an option, an investor must evaluate his/her own personal financial situation and consider all relevant risk factors. Also See: Characteristics and Risks of Standardized Options (http://www.optionsclearing.com/publications/risks/riskstoc.pdf).
