The euro implosion reminds us all just how unpredictable life can be.

PHILADELPHIA - Not too long ago, everyone (me included) was predicting the Decline of the Dollar. It really looked inevitable; after all, the Americans' budget deficit was growing faster than bamboo and economists were unanimously anticipating prolonged high unemployment and slow growth for the USA.

The problems in the US economy remain - high dependence on credit-based consumer spending, a still-fragile banking system, persistent housing market weaknesses and various other woes - but the whole game has changed with the serious problems in Europe.

In case you haven't heard, say you live under a rock or something, there's some serious trouble in euro paradise thanks to a crisis in Greece's fiscal management. The Greeks' budget deficit is close to 13%, the Greek government seems unable to control its spending, and international bond buyers have pushed the yields on Greek bonds into the stratosphere, making it very unlikely that Greece will be able to borrow enough to plug the leaks.

This would just be an unfortunate situation for Greece if it wasn't for the fact that Greece is a member of the eurozone, and a debt default by it could unravel the whole currency union. The rest of the European Union has very reluctantly said that it will save Greece if it comes to the crunch, but Europe's finance ministers have refused to commit to any specifics. Instead, they've given Greece a month to get its house in order, and warned that if it doesn't, the EU will force Greece to adopt a number of unpleasant fiscal measures.

The whole mess is being exacerbated by revelations of Greek statistical fudging and use of hedging instruments to hide the extent of its debt problems, which has made the other Europeans, especially Germany which is likely to bear the highest proportion of the costs of any rescue package, very angry indeed.

It's a great, big, steaming mess, and has sent the euro into a slump. In fact, parts of the business press are buzzing with suggestions that this could spell the end of the euro, although the truth is that this would be a really big decision that no one will be in a rush to make it. Nevertheless, the fact that this is being discussed as a possibility is unsettling.

The real point of all this, of course, is that the events in Greece and the EU took markets by surprise, and completely undermined predictions and expectations left, right and centre. It's that old black swan phenomenon at work. The idea, taken from Nassim Taleb, is that economies and markets are fundamentally unpredictable. Historical performance is no guide to future performance, because the unexpected can happen; unexpected, or ‘black swan' events like the collapse of the US housing market or the crisis in Greece, can completely change the game.

This is a lesson that we should have learned very well over the last few years, what with unexpected events like the implosion of the mortgage-backed securities market, the collapse of Lehman Brothers, and President Jacob Zuma impregnating yet another woman half his age (well, that's perhaps not entirely unexpected), but it seems that the human instinct to predict, and to believe in those predictions, remains as strong as ever. And the fallibility of those predictions also remains as strong as ever.

So, given the intrinsic instability, volatility and unpredictability of economic and market events, what's an investor to do? Taleb's advice is to put most of your money in safe-haven assets like US Treasuries and to use a small amount to make calculated bets on possible future events that could pay off handsomely if they come to pass.

But if these years have shown us anything, it's that even safe havens can get choppy in stormy weather. US T-bills, for example, could become less-than-ideal safety assets if the American economy goes belly up. If the euro can run aground, so can the dollar (although there are good reasons why the United States' monetary union has managed to withstand the impending default of California while the EU cannot withstand the problems in Greece). Perhaps the best thing to do is to hoard bars of gold under your mattress.

Unfortunately, there aren't any consoling words one can offer to the anxious investor. The world is, as we've seen, a scary place, and anything can happen. The best you can do is take solace in the fact that everyone is as clueless as you.

Write to Felicity Duncan: felicity@moneyweb.co.za or follow her on Twitter at http://twitter.com/FelicityDuncan

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logic If a. "...everyone is as clueless as (me)..." and, b. "Taleb" exists within the expression 'everyone', then c. "Talebb" is clueless so what is the point? by phill on February 17 2010, 05:04 Find this comment inappropriate? Report it

Unpredictability is one thing, but...... Much of what has caused the recent economic crises has been, technically, criminal activity on the part of financial institutions and governments. Yet they remain unpunished, indeed many (most) have been rewarded. It's opened a Pandora's Box, with a . .more message that one can steal and swindle on a grand scale and get away with it. Until people are held accountable we will see more and more of Felicity's black swans. . .less by Cynic on February 17 2010, 05:10 Find this comment inappropriate? Report it

This article is pointless Come on, Felicity, you can do better! by marc on February 17 2010, 05:12 Find this comment inappropriate? Report it

Off topic: Soros the manipulator February 2010: Soros warns of gold bubble http://www.commodityonline.com/news/Soros-warns-of-gold-bubble-again-25361-3-1.html March 2010: Soros More Than Doubles Gold ETF Holding in Fourth . .more Quarter. http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aJVbGlK7nEms Soros is a p$(s Troy Ounce . .less by Troy Ounce on February 17 2010, 05:31 Find this comment inappropriate? Report it

Euro / Dollar / Sterling I have attended 3 Investment Presentation recently, hosted by well known and respected Investment Houses.To a man they are saying invest abroad......................... For the past 10 years Mr Joe Public has done so...........and been burned . .more big time. The only one who has made (a lot of) money has been the Investment Managers. S A is small fry, and what happens abroad will affect us.....................I am keeping my (few) Rands under my pillow! . .less by Taffy Dee on February 17 2010, 05:57 Find this comment inappropriate? Report it

"The euro implosion reminds us all just how unpredictable life can be" Ja, well, no, fine! If that's the case, then how come all the economists and talking steaks on tee-vee keep trying to convince us that they know the future, what's going to happen, and "the housing market is recovering", "buy now for . .more superior returns over 2 years"? huh? HUH? HUH?????????????????????? . .less by Phux Sakes on February 17 2010, 06:21 Find this comment inappropriate? Report it

@Greece I overheard I think on BBC News that about 70% of Greeks do not pay taxes or do not declare their income. IIn SA about 4-5 milions of registered taxpayers pay taxes but the other 45 millions pay not . But obviously they can vote, demand etc..etc . .more . .less by Jack07 on February 17 2010, 06:59 Find this comment inappropriate? Report it

Sour Grapes I think Felicity is just disappointed that she was not chosen to bear a Zuma Love Child.... by Pimp on February 17 2010, 09:09 Find this comment inappropriate? Report it

Ummm, no... "The euro implosion reminds us all just how unpredictable life can be..." Actually, the PIIGS have been on the radar for quite some time, with Greece leading the way. This was predictable, and was indeed predicted. Greece has absolutely no way . .more out that doesn't involve sever recession (or depression), and this is known. What this SHOULD remind us is that the people in charge, when faced with a bad situation, will most often dig a nice little hole and put their head in it. This way they can reassure their constituents in all honesty that they see no problems and it all looks rosy, and when the dwang sprays off the fan they can say they didn't see it coming. Politics 101 . .less by M on February 17 2010, 10:26 Find this comment inappropriate? Report it

@various :-) @phil : the most significant difference when it comes to Taleb (who's ideas, it seems to me, aren't really properly presented here) is that he knows that he can't predict the future and has made a lot of money as an investor by understanding that . .more the can't predict the future. @Cynic: being held accountable has no effect on black swans. They're an inevitable outcome of our inability to deal with randomness and our tendency to believe that we understand what's going on, cause and effect and the like. @Phux: Because that's what they get paid to do, to do research and make predictions. They encourage people to believe their predictions because that way they make more money. More often than not they're completely unaware of how little they understand about what they're working with. Not all are saying those things, anyway. Fortunately, slowly but surely the knowledge that economists are pretty much just making it up is getting out there. @M: I haven't looked into it, but I wager that regardless of the fact that at least some were predicting it would happen, others were predicting it wouldn't (or simply weren't predicting anything of the sort). The point is that regardless of whether anyone was predicting it, no one could say for certain that it would. Economists (and other people) generally get their predictions right by accident. . .less by CTheB on February 17 2010, 10:59 Find this comment inappropriate? Report it

Advice from economists and Felicity ... is a useful as feathers on a fish. These talking heads jump on the same band wagon and talk the same rubbish which more than not proves to be wrong. If I were to listen to your "predictions" I'd be even poorer. So predict all you want . .more like some crazy astro-sangoma. Its the same advice I'd get at the bottom of my tea cup seeing beer is now more expensive... . .less by C-Biscuit on February 17 2010, 11:20 Find this comment inappropriate? Report it

euro will be at 1.45 again soon at 1.37 it is a great buying opportunity greece = 1.5% of euro gdp. if it goes bankrupt it is like a large corporate bankruptcy. nothing more by charlie on February 17 2010, 12:46 Find this comment inappropriate? Report it

@Phux Actually as its property they are talking about it should be "superior returns over 20 years" if it were 2 years we would be talking the stock exchange casino by andrewa on February 17 2010, 13:04 Find this comment inappropriate? Report it

The increase in Crime and Corruption inSA is predictable, for sure it is getting worse and worse Just ask the private security companies like ADT etc. I would also like to predict that Jake the dancer/singer has, at least, another illegitimate child and marries at least 3 more women. by Predictable? Sure. on February 17 2010, 13:56 Find this comment inappropriate? Report it

A murky pond One can only see were the torch is been lit in the murky pond It is currently shining on europe What else will be found when the torch moves again ? by Interested on February 17 2010, 19:06 Find this comment inappropriate? Report it

I see money! I've gotten a higher rating for the Greek national debt than any sane investor would normally agree to. For this I earned many hundred of millions of Euro's. Then I shorted Greek bonds, on which I am now making hundreds of . .more millions of Euro's. This has truly been a double whammy. Caveat emptor when you deal with me. If you're not on your guard, you will be taken. . .less by Lloyd Flankbein on February 17 2010, 22:21 Find this comment inappropriate? Report it

Greece and Euro zone economy Greece is a fraction of the total EU total economy. This whole exercise is just speculators trying to make a small problem something massive which it is not. The big issue is and will remain so for a long while is where will the the US $ eventually . .more end up? It's interesting to note that the "cure" being dished out to Greece is massive spending cuts and increased taxation and higher interest rates for borrowers, but for the US it was massive spending and lowering of interest rates for borrowers and tax cuts. - I suppose it can all be explained by the fact that economics is not a science but some sort of "black art." . .less by Peterw on February 18 2010, 00:52 Find this comment inappropriate? Report it

View Euro implosion? Dose the author mean that it is Imploding. If so then this implosion is hardly spectacular. Implosion hardly the correct metaphor I would say. Perhaps sliding or under pressure, but implosion I doubt. If the the author means will . .more implode in future, than she does not make an attempt to explain that. So what dose she mean by 'Euro implosion'. Ambiguous at best. Lets face it the value of all these currencies are trending downward, but relative to one another its any man's guess. Its only a question of which slides faster and by how much. Given this scenario we could go on for years witnessing nothing formidable in respect of currencies inspite of widespread currency weakness. It's an orchastrated fools race. But be sure at some point somewhere something will crack. I am personaly not convinced it will be a particular currency. There are just too many trans national back door bailouts to let that happen. i.e If big financial intitutions are too big to fail then so are most sizeable countries or currencies. Its just not going to happen unless the country is not of critical significance or is an enemy of the globalists. Or alternatively ther is a master plan to wreck havoc at point x in time. . .less by Xray on February 18 2010, 14:24 Find this comment inappropriate? Report it

@Phill You miss the point: The "clueless" does not refer to all matters in the universe, but simply to "what is going to happen re economic and financial/investment outlook" In any case, pick your guru(s) that you are happy with / resonate with . .more / trust, and use their opinions to help you form your own. . .less by E. on February 19 2010, 00:40 Find this comment inappropriate? Report it

Greece Greece = 2.5% of EU GDP California = 5% of US GDP No-one talked the $ down when California had problems. Why should Greece have an impact on the Euro. Its just a bit of volatility I just hope Greece does not get bailed . .more out. They have to sort this out on their own. Maybe with more help from Goldman Sachs . .less by Tim on February 20 2010, 01:05 Find this comment inappropriate? Report it

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