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Market Insights_Black Swans & Dragon Kings
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Market Thoughts

Surprise. The market is down 200%. Don’t expect it to recover anytime soon. It happens.

Fortunately, they’re rare, yet they leave generational scars. Just look what happened to Vancouver last week. Who would have ever thought that Vancouver would become an island? Essentially, cutting off 3 million people from the rest of Canada.

Dragon Kings are based off the inherent instabilities of complex systems These events are called Black Swan events. A surprise event that has major repercussions. Up until last week I thought only Black swans existed; however, it turns out there are things called Dragon Kings. Both are fundamentally the same, yet the difference lies in that Dragon Kings are based off the inherent instabilities of complex systems, like a supply chain.

Nomenclature really doesn’t matter when you just lost a couple of million to some random event. What does matter is how you hedge your bets against these events.

Two words: Risk Management.

Dragon Kings are based off the inherent instabilities of complex systems

Why This Matters

This matters because there is zero control over the situation and on an individual level there is virtually nothing that can be done until the situation stabilizes. A good example would be the 2008 market crash When the market crashed nobody could sell any canola until the market stabilized. Once it did, the price had dropped by almost ½ in a very short time. This is the reason why it is critical to manage risk.

Bulls and Bears

On the surface the Canadian grain market seems very bullish. However, the Vancouver event reminds us to take heed of the current situation. There is no way that logistics will be back to normal anytime soon. This could mean a host of unforeseen events transpire. Don’t be like Chicken Little, but rather be a realist. Don’t leave everything to chance.


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