“The central idea in The Black Swan is that: rare events cannot be estimated from empirical observation since they are rare.” — Nassim Nicholas Taleb
A black swan event, a phrase commonly used in the world of finance, is an extremely negative event or occurrence that is impossibly difficult to predict. In other words, black swan events are events that are unexpected and unknowable. The term was popularized by former Wall Street trader Nassim Nicholas Taleb, who wrote about the concept in his 2001 book.
Since last week’s newsletter, the number of confirmed cases has doubled. Evidence suggests that Covid-19 is set to spread further and faster. Thus far, the mortality rate is approximately 4%. This indicates that if the spread is left uncontrolled, then the number of deaths could be:
1 million infected = 40,000 deaths
10 million infected = 400,000 deaths
100 million infected = 4 million deaths
1 billion infected = 40 million deaths
In contrast, the Bubonic Plague or infamously known as the Black Death that occurred around 700 years ago had the number of deaths estimated at 50 million. With a world population estimated at 500 million at the time, that was a 10% mortality rate. It goes to show that the only weapon we have now is to flatten the curve and stop the spread of Covid19.
On the March 8, the Oil War was “officially” declared and this resulted in not just a Black Monday at the stock market the following day, but combined with Covid-19 effects, the perfect storm occurred and led to an entire week of share prices diving, depreciated currencies and even commodities took a serious beating. Many indices across the globe had not seen these levels since the 2008 global financial crisis.
Interesting to note is that once again, we see that during a bear market such as it was in 2018 and 2019 (exchanges were able to provide a service to both miners, funds and traders a means to hedge themselves), there is increasing demand for futures contracts in the crypto derivatives market.
In 2020, there are more futures exchanges and all of them have been showing increasing volume over the past weeks.
Published at Thu, 26 Mar 2020 11:42:04 +0000