Jun

23

Jarisch-Herxheimer reaction in medicine: A sudden and typically transient reaction (eg fever) that may occur within 24 hours of being administered antibiotics for an infection such as syphilis.

Application in financial markets? eg when a troubled stock sells off briefly after a new strategy or management is announced but the stock recovers after some 24-48 h carnage.

Asindu Drileba writes:

In The Education of a Speculator, Chapter 14, "Music & Counting":

Another frequent work I hear in the market is Haydn's Symphony No. 94 ("The Surprise"). The surprise is a simple fortissimo chord in the second movement, designed "to make the women jump." In a contemporaneous review of the work, a lyrical critic wrote:

The surprise might be likened to the situation of a beautiful Shepherdess who, lulled to sleep by the murmur of a distant Waterfall, starts alarmed by the unexpected firing of a fowling-piece.'

Two examples from currency markets:

1) Asia Currency crisis: When the Asian currency crisis of the 1990s was starting to manifest, IMF provided a loan to "stabilize" the economy. The currencies were stable for some time (the lull to sleep), then dropped by up to 80% in some Asian countries (the jump).

2) The Lebanese pound: The Lebanese pound remained very stable. Close to a flat line for 13 years (the lull to sleep), Then in Jan 2023 it dropped by 90% (the jump).

Equity Markets: "The best predictor that a company will go bankrupt, is stable income" — Nassim Taleb. Unfortunately its hard for me to get data on delisted (bankrupt) stocks so I can't test this. But the logic behind this reasoning is that, to provide stable income, corporations often optimise via unhealthy accumulation of debt, relying on a single supply chain (Apple & China), relying on a few big enterprise customers (Palantir & US Government).

While this optimisation makes it easier to milk profits that make a corporation look "stable" (the lull to sleep), it makes them more prone to catastrophic failure (the jump). A single customer canceling your service, trump tariffs on a single supply chain partner or debt unable to be paid may lead serious issues.


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