Perhaps we can console ourselves that Brexit was comfortably no longer the biggest shock of 2016? I suspect that for many this is cold comfort indeed. However, change is inevitable and one thing that we can rely on is man's seemingly limitless ingenuity and creativity when confronted by challenge, uncertainty and change.
In 2007, Nassim Nicholas Taleb, in the immediate aftermath of the global financial crisis, coined the term "Black Swan” events to describe occurrences that are pure outliers that can neither be reasonably expected nor easily predicted. The point about Black Swan events is not that they can sensibly be prepared for or anticipated (although we should never assume that they are an impossibility) but that they happen, are valid, logical (however improbable) and, in the case of the financial crisis, essential. Taleb's take on the 2007 financial crisis was that it uncovered a broken system and that such a system, if allowed to fail, would strengthen it against future Black Swan events. In hindsight it is logical, even obvious, to see how likely a Black Swan event would occur in a global financial system which no one could even contemplate in anything other than the most general and broad-brush terms. Indeed, Taleb proposes that certain financial institutions, especially banks and trading firms, are particularly vulnerable to hazardous Black Swan events and exposure to unpredictable losses. Some readers will remember the minor melt down in the split capital investment trust market in the early 2000's. Despite their best efforts no bank, investment manager, analyst, arbitrageur or regulator was remotely capable of modelling the systemic failure in that highly geared and incestuously invested corner of the UK stock market. If that is true, how could anyone predict, with any real confidence, a global financial crisis? Some got lucky but they were just as much a passenger as the rest of us.
Since 2008, and being aware of the Black Swan theory, perhaps we have got more used to labelling events as pure outliers. The past 18 months have been remarkable in the abundance of the inexplicable: David Cameron's election victory; Labour's meltdown; Brexit; Trump's presidential victory. If 2015 and 2016 have been remarkable they are framed by longer term events that are hardly less so. Russia’s current position in international affairs and the rise of Islamic fundamentalism around the world are two which spring immediately to mind.
In the world of wealth, the collapse of Long Term Capital Management is often cited as the first major Black Swan financial event of recent times but there are many other less obvious but worthy candidates. Who would have thought that the United States could effectively render Swiss Banking secrecy redundant and close down centuries old banking institutions without even setting foot in the cantons? Where there is uncertainty the natural human response is to seek certainty. Black Swans don't tend to show up when we really know what is going on. They hove into view when we think we do or when we forget just how little we do know.
One thing that the UK has always done well is stability. We've had our moments and, given what I have said before, perhaps I am tempting fate simply by rendering any complex system to generalities. However, it is repeatedly shown in our recent history that our country has reacted to change in a manner that is predictable, safe and even rational. Brexit was an outlier but the immediate aftermath has been hardly catastrophic. My own conversations with clients and contacts in, for example, the Middle East and Europe, has again and again reinforced the fact that, whether the UK really is as stable as we think, individuals, families, businesses and institutions think we are. If you are a wealthy Saudi family living in the Kingdom and confronted by the continuing instability of that febrile region, your horizons will undoubtedly spread to jurisdictions with stable political systems, banks, courts and rule of law, a land registry and a world leading financial centre and exchange.
So, perhaps we, in the UK, should (whilst perhaps not welcome) learn not to fear global change but to accept, even embrace, its possibilities. We are supremely good at advising clients how to mitigate risk whether at home or abroad - our very homeland seems to have overtaken even Switzerland as the apogee (arguably) of safe havens. Perhaps nothing epitomises that more than our legal system which is trusted throughout the world to deliver excellent advice and clear, ethical judgement where conflict reigns.
So as we watch Donald Trump sweep into office (and what does that do for America’s claim to be considered as safe a bet as the UK) and our own retreat from Europe, we should remember that we are a safe haven to many and that maybe those events are inevitable in the broken system that they represent. If it is the end of the world as we know it then perhaps we can console ourselves with the hope that it is the world's endless, Sisyphean effort to fix itself and we are one of the safest places from which to observe.
Winter 2017
Published: 31/01/2017
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