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Black Swan Event

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We are in the midst, and hopefully not the beginning, of a Black Swan Event which the Coronavirus is.

A Black Swan is a surprisingly rare unpredictable improbable event that could have a great impact with potentially severe consequences. There is more to the definition, but this is enough for now.

This was raised in a NY Times bestselling book by Nassim Nicholas Taleb titled The Black Swan: The Impact of the Highly Improbable. Since the book’s publication, the phrase Black Swan has entered our language describing the “unknowns” that could happen. Some of the Black Swans in my lifetime were Kennedy’s assassination, the Carter era 14% inflation rates, the 9/11 attacks and the mortgage crises in 2008/2009 and recession that followed. I can think of others but these seem to be indicative of a Black Swan event.

The truth of it is that we go about our lives and affairs assuming there will be periodic disruptions, but disruptions that would be in the realm of what we believe are probable, not scarcely possible. We are in new ground and a big problem is that we do not the extent of how this could grow and spread. We have every right to be scared, but we should be reassured that our government and health care agencies are working assiduously on finding a cure or way to contain the virus’ expansion and a method to mitigate the economic damage which has indications of being substantial.

Our asset values have plummeted. The market is also acting erratically with large stock changes daily and many bonds dropping in value rather than the predictable increases when rates drop. I have no way of knowing what will happen, but I want to call your attention to the very large stock market increase since the beginning of 2017 with the indexes just returning to those amounts; and that they are still all more than three times higher than the low point of 2009 [March 9 the DJIA was 6509] which was almost exactly 11 years ago.

Besides our health concerns, there is the tragedy of widespread loss of jobs through business slowdowns and closings. We may be worried about our stock values declining, but most of us will not be terribly affected as long as the dividends are maintained or if they do we can still fall back on some of our reserves. However, there are many people that depend on regular paychecks and who in fact live paycheck to paycheck and these have stopped, or will be stopping momentarily. Further, there are many part-timers and self-employed people that must have the meager income some of them earn which is being abruptly curtailed with the business closings, quarantines and curfews. Many will be losing cash flow they can ill afford to lose.

Another group that will lose necessary cash flow is undocumented people and many others that might work off the books. I know, they shouldn’t, but they do. They live here and earn money here and spend money here. There is no way to measure the losses to these people and no way to provide some relief to them. It appears that legally employed and documented workers will be gaining some governmental relief, but not the “underground economy” participants. I don’t have answers and do not condone those working off the books, but something also needs to be done to maintain some stability in that sector of the economy. Unfortunately, it is a reality and we must face it.

Also, it is usual for drops in jobs to occur much more rapidly than the recovery and job additions. I hope I am wrong…terribly wrong…but I think the economy will feel the ravishes of the Coronavirus long after we find a cure or way to curtail its spread.

I suggest we hunker down, protect our resources, help neighbors when we can and keep a positive attitude because things will get better, and this will pass. However, our lives will no longer be what it was. There is now a new reality and we will need to be adapting to that.

On the bright side, it appears that the virus has subsided in China and things are slowly returning to normal…providing they are telling us the truth.

God Speed and God Bless You.

Do not hesitate to contact me with any business or financial questions at emendlowitz@withum.com or fill out the form below.

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