Thursday, 27 February 2020

Ride A White Swan

Steve tweeted yesterday that:
I didn't think a black swan event would be what caused the markets to crash, and I still think they will recover pretty quickly. As central banks continue to print money, there will come a day (in years) where it will all come tumbling down. I sit and wait.
Is the Coronavirus a Black Swan event? My opinion is that it isn't, at least not yet.

We have had pandemics before, the most famous being the Spanish Flu outbreak of 1918-20, and in 2016, the Commission on a Global Health Risk Framework for the Future estimated that pandemic disease events would cost the global economy over $6 trillion in the 21st century—over $60 billion per year.

To qualify as a Black Swan event, the first of three conditions which needs to be met is that the event is a surprise.

Technically the current COVID-19 outbreak is currently a Public Health Emergency of International Concern, not a pandemic, but were it to surpass Spanish Flu in terms of the number of people infected, or have a significantly higher mortality rate than other viruses, then this would be a surprise event, but for now it is all very much business as usual. When a commission estimates the cost of an event, it's hard to say the event was unexpected.

Currently the mortality rate is somewhere between 2% and 3%, with around 82,000 cases so it has a long way to go to become a surprise event.

As for the impact on stock markets, clearly investors have been spooked. The good news for the economy is that 80% of deaths have been old people (mostly 'economically inactive' as the delightful Home Secretary might say), 75% of whom had underlying health issues. 

This is not like Spanish Flu which took the lives of young and relatively healthy adults, so the economic impact should be limited. The technology sector relies on factories in Mainland China so there may be an impact there, but for now the evidence to me looks like the crash is an overreaction. I hope so, as I've just put quite a lot of money to work in stocks although the market wasn't helped by the Trump press conference last night:
Dow futures turned from positive to negative during Trump’s coronavirus news conference
Thanks Donald. VP Pence is now in charge:
In 2000, Mike Pence wrote an op-ed stating that smoking doesn't kill people. Since then, he's made no effort to deny or clarify his bizarre claim. This is the man Trump put in charge of our country's protection from the CoronaVirus. Science is real, Mike. Facts matter, Mike.
Praying should fix it. 

I rarely go back and edit posts, but yesterday's was so poorly worded and confusing that I did just that. To be clear, I was trying to make the point that ROI%s can be misleading. An ROI of 10% after one bet is quite different from a 10% ROI after 500 bets. There is nothing poor about most of the the MLB ROI%s at all as anyone who has been around betting for more than five minutes will appreciate.

I did find a couple of errors in the data, corrected below, and the calls for the editor to be immediately fired have been heard. I shall be having a stern word later today, an interview without coffee as the saying goes.
One thing I'm struggling with as I plan for the new MLB season is the disparity in results between the Money Line and the Run Line. One trend is backing certain home favourites playing a league opponent from outside their division in a day game, a system which had no losses last season, and just one in 2018. The returns from the two bet types since 2010 are:

I'm continuing to look at this in my spare time. I suspect it's an issue with the data, and that the Money Line markets simply have a reduced margin.   

No comments: