The man who hatched the Black Swan theory has advice for investors: Get yourself a tail risk hedge, pronto. “If you don’t have a tail hedge,” said Nassim Nicholas Taleb, “I suggest not being in the market—we’re facing a huge amount of uncertainty.”

The Black Swan theory holds that unlikely events—like, say, a pandemic upending the world economy—can and do appear from nowhere, and they happen more often than you’d think. In his 2007 book, The Black Swan, the former academic and derivatives trader argued that standard statistical models for markets are deficient, in that they are not attuned to detecting rare events. The 2008 financial crisis made him look like a prophet.

The term “black swan” refers to the fact that swans are always, well, white. So when a black one comes along, it is a rare occurrence.

Tail risk is the probability that an event on the narrow end of a bell curve of outcomes has a greater chance of coming true that standard-thinking investors feel comfortable with. In simple form, a tail risk hedge would be to protect long positions on the S&P 500 with derivatives that track the CBOE Volatility Index, or VIX, which is inversely correlated to the broad market benchmark.

Taleb, appearing on CNBC, pointed to what he considered the wackiness of the market’s rise, even as COVID-19 infections and deaths increase—which may well lead to more economic pain, in addition to human tragedy. He cast doubt that there will be a V-shaped recovery.

Washington may be working to forestall any further economic harm, he said, but for naught. “We are printing money like there’s no tomorrow,” he said, alluding to the Federal Reserve’s multi-trillion-dollar campaign to blunt the recession’s most dire effects.

The fear over the coronavirus will continue to haunt the market and the economy, he predicted, long into the future. “COVID seems to be there even if the pandemic dies down,” he said, and that means spooked consumers won’t be in a hurry to spend again and buoy the economy. “You will still have people cautious enough that it will impact a lot of industries,” he said.

Indeed, hedge funds that are designed to benefit from tail risks have enjoyed a remarkable run-up in the age of COVID-19.

For example, the CBOE Eurekahedge Tail Risk Hedge Fund Index has jumped 50% this year. At the same time, the S&P 500 is down 2.6%. Universa, run by Mark Spitznagel, was up 4,000%. Taleb is an adviser to that fund.

On the other hand, the long-term record of these funds isn’t stellar, because market turbulence like today’s doesn’t occur as often as bull runs. Last year, the Eurekahedge fund lost 10% while the S&P 500 earned 34%.

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Tags: Black Swan, Coronavirus, COVID-19, Hedge Funds, Nassim Nicholas Taleb, S&P 500, tail risk, VIX