Dr. Doom warns of “White Swans”

Nassim Taleb wrote in the past, when it came to rare, highly unlikely events in financial history, of “black swans”. And so today Nouriel Roubini warns against the opposite, against “White Swans”.

“Black Swans” stand for extremely rare and improbable events. So Nassim Taleb wrote about this phenomenon for the first time in his book “Fooled By Randomness” and even dedicated a book to it: “The Black Swan: The Impact of the Highly Improbable”. Now, market expert Nouriel Roubini, also known as Dr Doom, warns against so-called “white swans” against the background of several uncertainties for the economy.

The expert points to various “white swans” in the market – the coronavirus is only one of them, although it may be shaking up the markets more than any other problem in the recent past. In addition to pandemic concerns, he cites geopolitical unrest on several fronts, a potentially turbulent presidential election, renewed trade disputes with China, potentially catastrophic damage caused by climate change and an increasing potential for cyber wars as events that are very likely to occur in 2020. “This list is hardly complete, but it shows what can be reasonably expected for 2020,” Roubini wrote in an essay for Project Syndicate.

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Coronavirus scares the markets

However, the stock markets have since refuted his statement that the financial markets continue to deny the risks blissfully and are convinced that a quiet, if not happy, year awaits the major economies and global markets. The coronavirus taught them to fear: In Asia, Europe and the USA, markets are in a downward spiral, after repeatedly reaching new highs just a few weeks and months ago. Companies are becoming increasingly cautious due to the still unpredictable economic consequences of the coronavirus.

Political problems on four fronts

But Roubini is not only counting the ever-spreading virus among the “White Swans” of 2020; he also takes a critical look at the geopolitical unrest on four fronts, including China, Russia, Iran and North Korea. US President Trump is trying to bring about a change of leaders in all these countries, among other things with the help of economic sanctions. In return, Putin, Kim Jong-un and Co. would probably welcome it if someone else took over Donald Trump’s presidency in the autumn.

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He regards the calm between the USA and Iran as nothing more than the well-known calm before the storm. “The acute threat he [Trump] poses to the Iranian regime gives every reason to escalate the conflict with the US in the near future – even if it means the risk of a full-scale war – if there is a chance that the resulting rise in oil prices will crash the US stock market, trigger a recession and lower Trump’s chances of re-election,” Roubini explains in his essay.

Relations between the US and China

Even though the US-Chinese trade war, which plagued the markets for more than a year, was already over in the minds of many with the Phase 1 agreement, and other issues affecting the markets are currently coming to the fore, Roubini believes that the conflict could flare up again. The expert even trusts China to be more involved in the new crisis: “For some Chinese politicians, it can’t be a coincidence that their country is simultaneously experiencing a massive outbreak of swine flu, the severe bird flu, a coronavirus epidemic, political unrest in Hong Kong, the re-election of the Taiwanese president for independence and increased US naval operations in the East and the South China Sea. Roubini fears that the peace between the US and China will not last long and that China could take action against the US – not by confrontation, but by cyberwar. In his opinion, hackers could, for example, interfere in the US elections.

If problems with China arise again, this could also result in a shock on the US bond market and possibly lead to an economic slowdown in the US. Roubini explains that China could dump US government bonds. The resulting strain on Chinese economic growth could then be offset in the Far East with capital gains from gold – because China has some open and hidden gold reserves.

Climate change and its consequences

Besides all the geopolitical risks, Roubini also takes a critical look at the development of the world climate. He doesn’t see climate change as something that will happen to us at some point, but believes that we are already in the middle of it: “It is a threat in the here and now, as the increasing frequency and severity of extreme weather events show”. Climate change could lead to costly environmental disasters. And there are still so many individual developments that could all lead to a “White Swan” event.

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Now it remains to be seen how the development regarding the coronavirus will continue and whether there will be other events this year of which Dr Doom warns.

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