I've got mixed feelings about this. It's not 2008, and there's no reason to expect another 75-year economic event again. On the other hand, tech and VC investment has more than tripped since 2008.
How do we know it's a 75 year event? Because it happened once 75 years before? How often should it happen?
We can't honestly answer how often it's going to or should happen. We can't honestly assess these sort of risk patterns because we don't have models that take enough of the variables into account (or even could?)
Check out Taleb's Black Swan. His big thing is understanding what risks are measurable (very few), which have a bounded/estimable impact (still very few), and which are both unbounded and immeasurable or most of them.
We do have models that take it into account.
Taleb's argument isn't that you can't model the market, it's that most people aren't using the appropriate models [0].
[0] https://en.wikipedia.org/wiki/Fat-tailed_distribution#Fat_ta...
https://www.springer.com/us/book/9781846284199
Enjoy!
Yeah but at some point the "250 year flood" might need a new name, like every other year flood or something.
Adding to this, the Swiss Franc revaluation in 2015 was called a 20 standard deviation event [0].
[0] https://www.ft.com/content/5a06ef16-b5e4-11e4-a577-00144feab...
Whether they really are is a different story.
It has been known for a long time that his is not the case: https://www.amazon.com/Fractals-Scaling-Finance-1st-First/dp...
The conclusion is: due to faulty mathematics, far out of the money options are underpriced. Or, who Mandelbrot concluded, "investing on the stock market may be riskier than you think".
It gets more and more difficult to accurately forecast that as uncertainty increases, which is why they're not priced as efficiently farther in the future. But since this is somewhat well known, you need to have some kind of edge to make it work - buying options haphazardly won't.
But if you have a few bucks to spare and want to gamble you could buy far out of the money options for a downturn. VIX gets priced in, don't know how it looks currently.
Or you can gamble with "paper money" at Thinkorswim.
If you see a 25 standard deviation you are either
1. Incredibly lucky
2. Incredibly unlucky
3. Or don't have a standard distribution (but a fat tail distribution or Levi flight or whatever)
And "the market can stay irrational longer than you can stay solvent" - by definition this produces few, rare payouts.
Far better to employ the LTCM strategy and write a lot of out of the money options: https://en.wikipedia.org/wiki/Long-Term_Capital_Management
The trick is to do that with other people's money, on which you initially get huge returns. You can then collect large managment fees. The collapse takes out the fund, but it's an LLC so the staff get to keep their bonuses from previous years.
In practice there are a bunch of concerns. You have the gambler's ruin problem: even if your bets are positive expected value, it's very easy to go bankrupt. Since your fund makes all of its money from crises you have a bunch of counterparty risk along a risk of regulatory intervention etc.. Your fund will lose money in most years and it's very difficult for potential investors to know whether you're actually positioned to make money from a crisis or just wasting all their investment. See Keynes' line about sound bankers.
Taleb endorses and advises a fund that tries to bet on "black swans"; it's explicitly advertised as a fund that will lose 5% of its value every year in "normal years", but hopefully pay off in exceptional years. You can invest in it if you want. In theory it should work, but no-one will really know until after we have one of those exceptional years.
The strict statistical meaning of a standard deviation applies to any statistical distribution
We now have "1000-year floods" five times in a year [1], is there good reason to think the economic predictions are more accurate than the climate ones?
[1] https://www.edf.org/blog/2016/09/01/we-just-had-five-1000-ye...
In practice it's calculated with models that are tuned with historical data (among other things), so if you fail to notice some important changes and update your models you might be wildly off.
Because that so called 75-year economic event never really happened, or at least its full consequences, has been delayed by doctors injecting lots of adrenaline keeping it alive.
Japan, China, EU, and US has since printed unprecedented amount of money. A lot of people think there wont be another 2008, I would be happy if it was only 2008 recessions. I am worry it will end up like 1930 with Great Depression.
While I think a downturn may be in the cards, I don’t think another financial crisis is for the US.
China however...
Now maybe that is just a way to sell books and it was a fun read, but I don't know.
I get the feeling we all know something is coming because it always has and it always will. Some suspect it's going to be catastrophic like never before. It's at least assumed it's going to hurt. We don't know when but it seems people are in agreement it's edging closer and closer and things are about to get really unfun for a while.
I just hope all the pain and misery happens to other people and I get through it unscathed. Totally going to take my share of the hurt most likely and that's OK I suppose. It's sort of fingers crossed at this point.
2008 crisis, mortgages get made boring, and the action now is in... well, if you can figure that out then there's a lot of money to be made. Car loans? Corporate loans? Foreign exchange? Commodities? I've seen all of those bandied about.