Kass: Why a 25% Drop Isn't Out of the Question

This blog post originally appeared on RealMoney Silver on Aug. 21 at 7:36 a.m. EDT.

Some loan market participants are now calling last month's losses in the credit market a "Black Swan" event, and I'd go even further by saying it's a sign that stock markets have a long way to go on the downside.

In his book, Nassim Nicholas Taleb describes a Black Swan event as an outlier outcome that is well beyond participants' expectations. It is a rare and highly improbable massive event that is difficult to foresee and terribly important -- for instance, the attacks on 9/11, or any severe stock market crash.

Not only are these Black Swan events generally impossible to predict, but they are also impossible to prevent. The event typically affects participants harshly, but it is readily explained after the fact....