The Myth of the Black Swan (Hale "Bonddad" Stewart)

Aug. 27, 2009 (Huffington Post) -- The most common argument made against people who see a recovery emerging is that we are in the middle of uncharted waters where the traditional rules of economic analysis don't apply. As I will demonstrate, nothing could be farther from the truth.

This is the third time that I have been through an economic event where there were groups of people who said the old methods of analysis didn't apply. The first situation occurred during the internet bubble. At that time, any company who's name ended in .com could get an IPO and make a million dollars. At this time I was still an institutional bond broker. I had numerous conversations with my clients regarding the events on Wall Street regarding what was happening in the markets. The general consensus was the market was heading for a fall because we lost sight of traditional valuation models. On the opposite side of the debate were people who came up with the most ridicules models to justify nonsensical market valuations. People such as myself were made fun of because we weren't part of the new, cool crowd. In the long run, we were right. Those that claimed the internet revolution would lead to a massive structural change in the methods of valuing stocks are out of the spotlight. In short, those who said we were in a new paradigm were wrong. Standard, run of the mill , boring economics won out.

Then there was the latest expansion. While some argued we were in the middle of the greatest story never told, there were others such as myself who highlighted the fact that job growth was weak and consumer spending was largely paid for with massive amounts of debt rather than equity. In short, this was an exact duplicate of the previous situation. A group of people said a new paradigm was emerging and those of us who were arguing against based on standard, run of the mill and boring economic concepts were pollyannas continually saying the sky was falling. But in the long run, we were right.

Now the US economy is at the end of the worst recession of the last 60 years and a group of economic writers (of which I am one) are saying the worst is over. We use standard, run of the mill, boring economic analysis to state out case. We note that: