However, there has been a time lag in their doing so. Looking at the S&P 500 one year chart I note that the recent sharp uptrend which began in October 2019 was broken last week however, the longer term uptrend which began in December 2018 remains intact.īlack Swan events have, in the past worked themselves out, and markets have always recovered and most times made new highs. I do not think that the market drop of last week (ending January 31) is the end of the decline/correction by any means. If you remember, the markets several months after the SARS scare fully recovered and indeed made significant advances. I could be wrong, but I tend to think (at this point in time) that medical advancements, quarantines and common sense will prevail, and that while we are quite a ways from seeing its peak, it should wind up being "SARS-Like". Of course, it is not impossible that the coronavirus could become pandemic and have far-reaching and long-lasting effects on the global economy. The deaths resulting from the typical flu are far greater than those expected from the coronavirus. That's a relatively small number, specially when compared to the number of annual cases of the flu alone here each winter in the U.S. Hence, there is a chance that the virus can have significant impact on the global economy.Īt present, there are around 12,000 cases worldwide - about a dozen in the United States. I recently read that it could take up to one year to develop a vaccine that will fight or prevent its spread and effects on those whom contract it.Īlso, considering that its origin is China, one of the world's strongest economies, it can be expected to have economic impact on that country, and others dependent upon products which they produce. As such, it needs to be addressed and this is going to take time. Regardless of what so-called "experts" are saying about the coronavirus, it is a serious illness - just ask anyone whom catches it. Stock market prognostications (I added this one myself).They are usually advanced as a means of shaping opinions that favor a position. Red HerringsĪs previously mentioned red herrings are typically logical fallacies or literary devices that lead readers/listeners to false conclusions. However, in each and every case recoveries led to new market highs. While the Dot-Com bubble, the 9/11 attacks and the SARs virus scare had more of a temporary effect, the housing crisis of 2008 resulted in one of the most severe bear markets in U.S. Examples of recent black swan events include:Įach of the above had far-reaching impacts on both stock markets and varying effects on local and world economies. They can also damage local, regional and world economies. Black Swan Eventsīlack swan events are very rare and have severe consequences. It may be either a logical fallacy or a literary device that leads readers or audiences toward a false conclusion. Red Herring - A red herring is something that misleads or distracts from a relevant or important question. In this article I try to determine if this is really a "Black Swan" or if indeed it is nothing but a "Red Herring".īefore getting into the nuts and bolts of this issue, let's define both scenarios:īlack Swan - The black swan theory or theory of black swan events is a metaphor that describes an event that comes as a surprise, has a major effect, and is often inappropriately rationalized after the fact with the benefit of hindsight. The recent Coronavirus appears to be the latest of these. From time to time certain "events" seem to spring up out of nowhere and adversely impact world markets.
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