A couple of news stories last week reminded me that there are some risks in life and in investing you can’t adequately plan for. Seemingly rare events have big consequences –both positive and negative—and are a key to understanding financial markets and history itself. This is the basic thesis of a book published several years ago, entitled “The Black Swan.” We can make our plans with the illusion of control, but some things we just cannot adequately plan for—think 9/11.
Earthquakes. A massive earthquake jolted Nepal last week and aftershocks still are being felt. This region is prone to earthquakes because of where it lies. An ancient collision of India, once a separate island is crashing into Asia and pushing up the Himalayas, and has set off devastating earthquakes. This is explained by the unifying framework known as plate tectonics that explains volcanoes, earthquakes, and other processes that shape the earth. The earth’s crust is broken up into several plates that slowly slide around, about 1-2 inches per year. As plates pull part, crash together, slide past each other, they fuel volcanoes, generate earthquakes and push up mountains. Earthquakes are inevitable in certain regions of the US and the rest of the world.
The Yellowstone Supervolcano. Scientists discovered a new magma chamber under Yellowstone. Yellowstone already is known as a supervolcano that massively erupted 640,000 years ago. A minor eruption occurred 70,000 years ago. A shallow subsurface magma chamber has long been known. Now, a second, much larger reservoir of partially molten rock has been discovered, with enough magma inside to fill the Grand Canyon more than 11 times. An eruption of the Yellowstone supervolcano would send ash several inches thick across most of the US and would change life in the US as we know it.
The New Madrid Fault Line. Earthquakes are occurring more frequently in the central US, according to the US Geological Survey. Our country’s most serious quake occurred at New Madrid, Missouri, which suffered an estimated 8.6 reading on the Richter scale in 1812. The impact a large quake would massively affect parts of Tennessee.
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