“Black Swan” is a book by publicist and market trader Nassim Nicholas Taleb about a highly unlikely event that often has extreme consequences. The black swan was chosen as a metaphor because black swans were still unknown in the western world at the time. Not only do negative black swans such as the financial crisis or the Fukushima nuclear accident occur, but also positive ones such as the discovery of antibacterial properties of penicillin or the discovery of America in search of a new route to India. The low occurrence of such events and their potentially massive consequences mean that the assumption of normally distributed historical data, on which many economic models such as the Black-Scholes model are based, does not comport for rare or completely unknown events (“statistical” outliers).

 

More recent scientific approaches, such as those of the former UK Federal Reserve President Mervyn King, refer to the distinction between risk and uncertainty. While risk can be determined using historical data series, this is not the case with uncertainty. However, this standard approach is still used in economics to determine uncertainty by assigning probabilities to a comprehensive list of possible, completely uncertain situations in the future. An expected damage or benefit is calculated from this. However, this is problematic in the event of a completely unsafe event, because in the case of a black swan, all of the damage or benefit is incurred. For these events, which are neither stable nor can be repeated, concrete measurement numbers convey an incorrect, possibly dangerous certainty. According to King, it would be more honest to simply say "we don't know".

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The many, widely divergent economic forecasts regarding the corona crisis give an idea of ​​how useless concrete forecast figures for Black Swan events and their consequences are. A Fed governor said, for example, that the US unemployment rate could rise from the current 3.5% to 15%. And historic measures of the American central bank also suggest that the world could be on the verge of a depression. Depending on the corona scenario, the German economy sages predict an economic growth for 2020 of -1.5% to -6%. The Seco forecast figures for Switzerland are not quite as far apart. And even the purchasing manager indices, which otherwise have very good forecasting properties, are completely useless in these times because they also fluctuate massively. For example, the recently plummeted PMI for China soared from its historic low in February (28.9 points) to 53 points now, and is again in the area of ​​economic expansion. But even at this time, the number says little about how strong the economic recovery in China will be in the coming months. As long as the corona crisis in the western world is not contained and there is little point in specifying the economic consequences, not only the (economic) political decision-makers, but also the financial markets will have to ride "on a daily basis". This means that markets will remain very volatile for a long time and major corrections cannot be ruled out in the meantime.

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Dr. oec. Susanne Toren

Chief Economist

Assetco Management

susanne@assetco.ch