3 sigma moves should only happen once every 50m years.
This is well worth a listen! Bond market is fucked, FED policy is fucked, there is no way out!
Discussion
The fact that we often see events that are supposed to be super rare exposes how out of touch the model parameters are.
Yeah it’s all a bit bollox, I’m sure we’ve had 1 in 100 year weather events 20x in the last few years.
But then we’ve also got a shit load of idiots working in the media!
Yeah, the problem is the model assumption. If you’re going to predict an event, you have to know (or assume) a distribution from which to pick random variables.
When these reports say “three sigma” event, they signal that their distribution is a normal distribution. Some events have been observed in the past, and a mean and standard deviation were computed.
But if the distribution were truly normal, then these unlikely events would occur less frequently than observed.
For example, if your statistics tell you that a particular, independent, random event should happen roughly once every hundred years, then the chances of it happening in any year is 1/100 = 0.01. Twice in two years would be 1/100 * 1/100 = 0.0001. That is, two back-to-back instances should only occur once in 10,000 years.
The more unlikely the observed event, the more you have to question whether it was actually your estimation method that was at fault.
👀 - "A Ponzi scheme cannot be tapered. You can talk about Sam Bankman-Fried, you can talk about Bernie Madoff, or you can talk about Bernanke, Powell, Yellen, and Greenspan. Because what they do is that they issue IOUs for which they don't have the money; they don't have the GDP, the tax receipts, or income to pay for those IOUs" - Matthew Piepenburg
The quiet part as loud as possible!
This is brilliant 🌐 - after years of silence on LinkedIn, I shared the link there. While I was at it, I did review some of the few previous posts just to realize that I had my share of shitcoinery - fuck, but the excursion was necessary for me to grow diamond hands. #[0]