“Grey swan is a term used to describe a potentially very significant event that is considered unlikely to happen but still possible. Because there is a slight chance the event will occur it should be anticipated, particularly as it could shake up the world, economy, and stock market” —Investopedia
This column’s intent it to get people thinking about potential significant market moving events that may or may not happen. In order to be totally objective and totally unencumbered there can be NO bias. That’s right, no political bias, no market position bias, no historical bias . . . just a completely objective thought on a potential “Grey Swan Event.”
So whether you’re a billion-dollar fund manager, a financial advisor, a passive investor, a proprietary firm trader or maybe even a global central banker, how would you position your investments, implement a strategy or hedge your positions?
Scenario One: 

What if . . . the U.S. political landscape takes a new twist ahead of the 2020 election? For any number of potential issues, the leading Democratic frontrunners are forced to drop out of the race and Hillary Clinton is asked to run again. Would she defeat President Trump? How would a President Hillary effect global markets? How would you position for such an event?
Potential portfolio adjustments:
• Go long on financials, high dividend equities and commodities (soybeans, corn, grains)
Go short on consumer equities and energy
Scenario Two:

What if . . . Iran surprises the world and does a full pivot, agreeing to new talks to limit nuclear development and regional influence? Sanctions are lifted and Iran is able to sell oil on the global markets again. Oil drops to $25 a barrel, creating massive budgetary problems for other producers. A glut of oil results in industry layoffs and economic growth in many producer countries significantly stagnates. Deflation results with some producer countries having to default on obligations. How would these events affect your portfolios?
Potential portfolio adjustments:
• Go long on the dollar, bitcoin and gold

• Go short on energy (oil) companies and green energy (solar, wind) companies
Scenario Three:

What if . . . China decides to “test the West” and asserts itself by sending their military into Hong Kong and simultaneously annexing Taiwan? How would the U.S and its allies react? Would they react? What would happen to the Japanese and South Korea markets?
Potential portfolio adjustments:
• Go long on bitcoin, gold, oil, defense equities and cybersecurity equities
• Go short on Asian currencies and commodities (soybeans, corn, grains)

These are just three of many lurking scenarios that are hiding in plain sight but certainly are not widely expected to actually take place, making them fit the classic definition of a Grey Swan Event.
Remember, a Black Swan event is something totally unforeseen (a meteor crashes into Earth, a dormant volcano erupts, etc.) that you can’t prepare for. But a Grey Swan is a ”what if?” event that could happen and it’s important to keep them in your line of vision for portfolio protection and/or potential loss mitigation.
Bill Taylor is managing director and chief investment officer of Entoro Wealth LLC.