Black Swan Events

The world of finance has its own set of terms to describe whatever is happening in the market. And given the current situation, just talking about “Bulls” and “Bears” is not enough. Let me introduce to you another term. The Black Swan.

Black Swan events happen every now and then. Like now. Since this is a rare event, let me also do something rare. Let me add a visualization from my favorite visualization website, www.visualcapitalist.com to this post:

mm_black_swan_events_main-2

I love this website and I can only recommend anyone interested in understanding how the world works to be a frequent reader and/or to subscribe to their free newsletter. It’s awesome. And no, I am not getting any commission or compensation for writing this.

Having said all that, there is some great information on this graph. Let me point out one negative, and one positive.

First of all, on a slightly negative note, while the markets crashed heavily in recent weeks, there is still room to fall. It may be hard to imagine, but share prices might still not have reached the bottom. We certainly have not reached the same proportional drop as back in 2007/2008 during the financial crisis. In the long-term chart most investors who are more than 10 years in the market, are still very much in the greens.

Secondly, on a more positive note, we can learn here that every crash is followed by a recovery. Investors do well to keep their shares, not to panic, and instead to look out for opportunities to continue investing even as the crisis keeps evolving.

Is a recession coming?

This is a complicated question and there are many factors involved. But the chances are, in my humble opinion, pretty high. The current crisis is forcing major industries to shut down operations. Hotels, airlines, restaurants, bars, events… we are talking about millions of jobs worldwide. All the lost income, disappearing pay-checks, lost taxes, depleted savings accounts. We will feel the effects of this crisis far beyond the time when the Covid-19 Virus will take its place in history books.

Our entire world economy is based on consumption. People need to spend money to help us generate cash flows, profits, and to pay wages and taxes to keep this machine running. This won’t stop, but it will definitely slow down over the next couple of months. Therefore, it might very well be that we will have a couple of rough weeks or even months ahead of us.

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