Whether we talk about Herodotus, Thucydides, Montesquieu, or Gibbon, the fundamental element is that history illuminates human conditions. If we take it a step further, we discover that history is not the unpeeling of the past but the breathing in of the living foundations of the present and sometimes of the future too. If that applies to history, how relevant is it for the markets?
How can I summarize what is happening in the markets nowadays? I will use Hegel’s description in Phenomenology of Spirit: Let’s imagine a Master Market and a Slave Market. It is the latter that makes the former’s life possible. The Master is alienated from reality because s/he lost touch with the world that the Slave has created for her/him. The Slave identifies with the world that s/he creates. The Master is wholly dependent upon a world that the Slave created. So, the Master is enslaved by the Slave’s creation. The relationship has subtly and profoundly changed, as have the meanings of freedom and enslavement.
Who is the Master Market? Could it be the central banks and their paternalistic mentality of transitory inflation and soft landings?
Who represents the Slave Market? Could it be the reality of fundamentals that we have chosen to ignore for some time now while celebrating astonishing multiples and virtual realities without anchors? In the Master Market, the dysfunctional euro can go through the roof of $1.50+ only to land in the reality of dollar parity. In the Master Market, Bitcoin can go to $67K+ and why not to $500K, only to see some of the largest names in the sector going belly up. In the Master Market, zero and below zero rates (let alone circulating money) are harmless and do not distort reality. In the Master Market, we are masters of the universe.
In the Master Market, we welcome China into the WTO, and we allow ourselves to be played by belligerent players like Putin. In the Master Market, we allow the Chinese to dominate international ports and the Russians to use Europe’s energy markets as their playground.
In the Master Market, we live in an angelic world where those who raise red flags about national, energy, food, and trade security are simply nut cases. In the Master Market, we keep feeding the turkey every day for 99 days. Then (to borrow Nicholas Taleb’s analogy), day 100th comes, but guess what? It’s Thanksgiving!
In the Master Market, we can ignore fundamental principles of democracy and transfer of power and expect that by trumping those fundamentals we do not invite devolution, disorder, and anarchy, but guess what? Entropy is waiting just around the corner as long as the leaders become chickens who are running around with their heads cut off. How could we expect things to improve unless the excesses return to a natural equilibrium? That could apply to real interest rates, equity multiples, inflation and unemployment rates, and even economic growth.
Unnatural policies bring unnatural phenomena where the 2-year Treasury pays more than the 10-year Treasury, instilling fears of impending recession. Could that lead to rising illiquidity in long-term bonds, and if that were to happen, could that, in turn, affect market liquidity knowing that the game of rehypothecation could detonate financial stability?
Speaking of detonations: How concerned should we be of dirty bombs and missing/loose nukes that could be used by Putin and his cronies who claim no knowledge/involvement?
And because we cannot be sustained by bread alone:
Canceling the Noise; Not by Bread Alone Part XIII
Author : John E. Charalambakis
Date : July 14, 2022
Whether we talk about Herodotus, Thucydides, Montesquieu, or Gibbon, the fundamental element is that history illuminates human conditions. If we take it a step further, we discover that history is not the unpeeling of the past but the breathing in of the living foundations of the present and sometimes of the future too. If that applies to history, how relevant is it for the markets?
How can I summarize what is happening in the markets nowadays? I will use Hegel’s description in Phenomenology of Spirit: Let’s imagine a Master Market and a Slave Market. It is the latter that makes the former’s life possible. The Master is alienated from reality because s/he lost touch with the world that the Slave has created for her/him. The Slave identifies with the world that s/he creates. The Master is wholly dependent upon a world that the Slave created. So, the Master is enslaved by the Slave’s creation. The relationship has subtly and profoundly changed, as have the meanings of freedom and enslavement.
Who is the Master Market? Could it be the central banks and their paternalistic mentality of transitory inflation and soft landings?
Who represents the Slave Market? Could it be the reality of fundamentals that we have chosen to ignore for some time now while celebrating astonishing multiples and virtual realities without anchors?
In the Master Market, the dysfunctional euro can go through the roof of $1.50+ only to land in the reality of dollar parity. In the Master Market, Bitcoin can go to $67K+ and why not to $500K, only to see some of the largest names in the sector going belly up. In the Master Market, zero and below zero rates (let alone circulating money) are harmless and do not distort reality. In the Master Market, we are masters of the universe.
In the Master Market, we welcome China into the WTO, and we allow ourselves to be played by belligerent players like Putin. In the Master Market, we allow the Chinese to dominate international ports and the Russians to use Europe’s energy markets as their playground.
In the Master Market, we live in an angelic world where those who raise red flags about national, energy, food, and trade security are simply nut cases. In the Master Market, we keep feeding the turkey every day for 99 days. Then (to borrow Nicholas Taleb’s analogy), day 100th comes, but guess what? It’s Thanksgiving!
In the Master Market, we can ignore fundamental principles of democracy and transfer of power and expect that by trumping those fundamentals we do not invite devolution, disorder, and anarchy, but guess what? Entropy is waiting just around the corner as long as the leaders become chickens who are running around with their heads cut off. How could we expect things to improve unless the excesses return to a natural equilibrium? That could apply to real interest rates, equity multiples, inflation and unemployment rates, and even economic growth.
Unnatural policies bring unnatural phenomena where the 2-year Treasury pays more than the 10-year Treasury, instilling fears of impending recession. Could that lead to rising illiquidity in long-term bonds, and if that were to happen, could that, in turn, affect market liquidity knowing that the game of rehypothecation could detonate financial stability?
Speaking of detonations: How concerned should we be of dirty bombs and missing/loose nukes that could be used by Putin and his cronies who claim no knowledge/involvement?
And because we cannot be sustained by bread alone: