Posted on 03/10/2020 8:16:12 AM PDT by Kaslin
Some financial writers have claimed that stock market crashes such as followed the 2007 Bubble are unpredictable and rare, calling them “Black Swan” events. More recently, the Covid-19 health threat has been described as a “Black Swan” event. Making the two together about as “Black Swanny” as it gets. However, a review of history suggests that severe financial crashes have always followed great financial bubbles. The transitions to busts have had much in common and the methodical pattern strongly suggests that even the greatest of crashes since the first in 1720 have predictable characteristics. Therefore, severe financial panics cannot be considered as “Black Swan” events.
And contagious diseases from epidemic to pandemic have been around for so long that while providing nasty periods, they may not be “Black Swan” events. What about now, when the financial crash has been accompanied by a disease scare? It has happened before. In the mid-1500s Antwerp was the financial and commercial capital of the world. The brilliant trader, Thomas Gresham was the financial advisor to Elizabeth’s government (A Biography of Sir Thomas Gresham). He assisted the Crown considerably during booms and busts. On one of the latter, Spain, the leading power at the time, defaulted on its debats.
That bust ran from 1560 to 1563 and Gresham wrote: “this plague time there is noe money nor credit to be had in the Streat of London.” Meaning the Black Death accompanied a financial calamity. So, disease threats and crashes are nothing new.
Just how predictable was the current hit to the financial markets?
(Excerpt) Read more at americanthinker.com ...
Market is acting sickly right now. Didn’t hold the overnight retracement. Europe closes in a few minutes so we will see what happens.
I have no guess as to this afternoon. Could go either way.
I wonder if there is an underlying reason for the medical panic? For example, the Spanish flu came in three waves. The first wave was quite mild, then the second wave hit with tremendous impact, resulting in most of the fatalities. The third wave was a weaker reflection of the second wave.
I never read a good explanation of these waves, other than “a mutation” to the virus. But what if there was *another* reason?
For example, with the disease called Denque (den-gay) fever, the first time a person gets it they are miserable for about three weeks. But if they catch it a second time, it could become a hemorrhagic disease like Ebola. Very deadly.
Coronavirus might work in tandem with another version of itself, or even another disease like influenza, to create an especially deadly disease.
If this was known to the medical community, it might explain their overreaction.
As Nassim Taleb, author of The Black Swan (2007) tweeted this morning:
“Can someone explain to me why it is “irrational” to stock up on nonperishables (such as toilet paper) when interest rates are nearly zero ?”
Amazing how the herd mentality takes over the markets... everything is all about emotion right now... it seems devoid of thinkers.
I think the market was overdue for a correction. The virus may have been the trigger but it was bound to happen sooner rather than later.
It's cruel but markets and economies need corrections and recessions to burn out the inefficient. Sucks if you're one that gets caught up in it but a lot better than the alternative.
“Just how predictable was the current hit to the financial markets?”
The timing and amount of this correction was not predictable at all. Just saying that a downturn will occur sometime after a bubble is meaningless.
“I wonder if there is an underlying reason for the medical panic? “
I don’t know that our CDC virus hunters are exactly in a panic, but they aren’t part of the complacent crowd dismissing it either. They have been asking for access to Wuxan and China isn’t cooperating. So they don’t know as much about this virus as they would like.
It’s certainly a very big deal in China. It may be more lethal for the Chinese than other genetic groups, something to do with ACE2 receptors in the lung.
Your point about a potential 2nd wave is a real concern. Coronaviruses mutate quickly just like the flu does. Apparently that’s what happened in 1918 between the waves. Covid-19 has already known to have split into two variants, “L” being more aggressive than “S”.
“I wonder if there is an underlying reason for the medical panic? “
I don’t know that our CDC virus hunters are exactly in a panic, but they aren’t part of the complacent crowd dismissing it either. They have been asking for access to Wuxan and China isn’t cooperating. So they don’t know as much about this virus as they would like.
It’s certainly a very big deal in China. It may be more lethal for the Chinese than other genetic groups, something to do with ACE2 receptors in the lung.
Your point about a potential 2nd wave is a real concern. Coronaviruses mutate quickly just like the flu does. Apparently that’s what happened in 1918 between the waves. Covid-19 has already known to have split into two variants, “L” being more aggressive than “S”.
“Coronavirus might work in tandem with another version of itself, or even another disease like influenza, to create an especially deadly disease.”
well, no. that hasn’t happened with COVID-19 and is looking unlikely ... it’s looking like the disease is on the wane in china ... the chinese claim to have shut down all the temp hospitals around Wuhan and also claim the number of new cases and deaths are diminishing ...
the market is currently crashing for two major reasons, both very real: there’s a gigantic oil price war between Russia and Saudia Arabia that has totally crashed the energy markets, and there’s also legitimate concern for an economic slow-down, ranging from supply-line disruptions to concern for workers being quarantined, and the tanking of the entire travel and hospitality industry as folks choose to stay home instead of traveling for vacation, pleasure (sporting events), and business travel (conventions are cancelling like crazy right now) ...
unfounded conspiracy theories are unnecessary to explain what’s happening with the market right now ...
“Amazing how the herd mentality takes over the markets... everything is all about emotion right now... it seems devoid of thinkers.”
that’s pretty much how markets always operate ...
Black swans are rare and the Roman poet Juvenal made point in the second century. He didn’t say they didn’t exist, just seeing one in Europe would be rare.
By definition then, Black Swan events are rare, indeed.
The market is a powder-keg ready to blow at 22 times earnings, when many leading stocks are trading at 100 times earnings or more.
One the reaction begins, it becomes self-sustaining. The corona virus could disappear tomorrow, but now everyone is worried about oil prices and ultra low interest rates.
Dow is up 900+
I always thought what happened in 2007 was fishy. I don’t believe we were nearly as close to Armageddon as everyone was saying. More likely it was a set-up by the democrats to get Obama elected. Worked like a charm didn’t it?
Interesting, brief article.
Yeah I’ve seen that L and S strain mentioned. One article suggested that the tamer S is what’s in Seattle, China obviously having the more virulent L.
With any luck maybe the S will provide some immunity to the L strain.
It’s interesting that this New Scientist piece says that the two strains were present from the start. Some sites assumed it was mutating, apparently RNA viruses like Covid-19 are unstable and mutate very easily.
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