Over the course of 25+ years, we came to believe that inflation was dead, there was no alternative to stocks, interest rates will stay low forever, tech companies’ stocks will shield our portfolios from downturns, and that the big daddy, a.k.a. the Fed, will take care of downturns.
In the ancient world, there was a goddess whose mission was to encourage stupidity among mortals and immortals. Her name was Atë. Atë was the daughter of strife (Eris) and through her birth (according to Hesiod’s account) came quarrels, wars, ruin, starvation, anarchy, narratives of lies, imputed perversion and destruction. Obviously, Atë was the opposite of Metis who represented the goddess of planning, cunning, and wise counsel.
During this year, a number of myths collapsed: Where should we start? From the belief that Europe won’t see war again, or that cryptos protect portfolio value? How about that tech mega-caps such as FaceBook/Meta represent a one-way street to riches? Nowadays, the narrative is that a possible US recession will be a shallow and short-lived experience. Are we neglecting an undergirding reality that points to fragility, conflict, injustice, and institutionalized paranoia, a combination of which sway opinions that lack fundamental anchors when assessing financial, economic, and geopolitical trajectories?
Could it be that 2022 was the prelude of an emerging and rising entropy in economic, financial, and geopolitical affairs that will bury misconceptions of stability and prosperity bought on credit? Communism collapsed because it made the wrong assumptions about human nature. Do we need to revise our own assumptions going forward? And if yes, what are the portfolio implications going forward?
Around the year 585 B.C. an Ionian pre-Socratic philosopher named Thales wanted to identify a unifying principle that would provide a rational basis and the foundational point (arche) of understanding the cosmos. He ended up naturalizing the gods and taught that the cosmos was filled with a divine soul that became the source of all motion in the cosmos. A few years later, another Ionian philosopher named Anaximander taught the world that the mechanism that moved the cosmos was made up of two pairs of opposites: earth and water, fire and air. Welcome to pre-Hegelian dialectics where the cosmos is composed of substances with opposite properties. A stage of history marked by wet and cold conditions will be followed by a historical stage (metaphorically) where hot and dry conditions will dominate.
What is the equivalent in portfolio construction? What is the foundational point of understanding the markets nowadays? And if we were able to understand that foundational point, what is the mechanism that could prevent wealth destruction?
In our humble understanding, there is a good chance that the foundational point of moving forward is a morphing nonlinear reality of rising entropy, fragility, and conflict (Atë). If that were the case, then portfolios require a defensive but significant (in terms of allocation) constant – a Metis – that will act like an anchor while the balance of holdings seeks growth and income.
Components of the defensive constant could be found in sectors such as:
- Defense-oriented companies
- Traditional energy companies as well as companies with LNG export terminals
- Companies with strong balance sheets and plenty of cash who have a tradition of paying growing dividends
- A three-to-four-year bond ladder made up of Treasuries and high-quality corporate bonds
When another pre-Socratic philosopher showed up, the cosmology derived from Greek religion had no job left for it. Heraclitus sought an unbreakable unity for the cosmos. What existed prior to his days was based on two principles: matter and soul. Heraclitus linked material and intelligent causation. Fire unified matter but fire was coextensive with Logos which held the universe together. In a universe of change, fragility, entropy, and conflict it was Logos that brought pattern, antifragility, and order. The opposites were stages of a process of constant change under the supervision of Logos.
Preparing for 2023: Will it be Atë’s Chaos or an Orderly (Dis)Equilibrium that seeks its Metis and the Logos?
Author : John E. Charalambakis
Date : November 29, 2022
Over the course of 25+ years, we came to believe that inflation was dead, there was no alternative to stocks, interest rates will stay low forever, tech companies’ stocks will shield our portfolios from downturns, and that the big daddy, a.k.a. the Fed, will take care of downturns.
In the ancient world, there was a goddess whose mission was to encourage stupidity among mortals and immortals. Her name was Atë. Atë was the daughter of strife (Eris) and through her birth (according to Hesiod’s account) came quarrels, wars, ruin, starvation, anarchy, narratives of lies, imputed perversion and destruction. Obviously, Atë was the opposite of Metis who represented the goddess of planning, cunning, and wise counsel.
During this year, a number of myths collapsed: Where should we start? From the belief that Europe won’t see war again, or that cryptos protect portfolio value? How about that tech mega-caps such as FaceBook/Meta represent a one-way street to riches? Nowadays, the narrative is that a possible US recession will be a shallow and short-lived experience. Are we neglecting an undergirding reality that points to fragility, conflict, injustice, and institutionalized paranoia, a combination of which sway opinions that lack fundamental anchors when assessing financial, economic, and geopolitical trajectories?
Could it be that 2022 was the prelude of an emerging and rising entropy in economic, financial, and geopolitical affairs that will bury misconceptions of stability and prosperity bought on credit? Communism collapsed because it made the wrong assumptions about human nature. Do we need to revise our own assumptions going forward? And if yes, what are the portfolio implications going forward?
Around the year 585 B.C. an Ionian pre-Socratic philosopher named Thales wanted to identify a unifying principle that would provide a rational basis and the foundational point (arche) of understanding the cosmos. He ended up naturalizing the gods and taught that the cosmos was filled with a divine soul that became the source of all motion in the cosmos. A few years later, another Ionian philosopher named Anaximander taught the world that the mechanism that moved the cosmos was made up of two pairs of opposites: earth and water, fire and air. Welcome to pre-Hegelian dialectics where the cosmos is composed of substances with opposite properties. A stage of history marked by wet and cold conditions will be followed by a historical stage (metaphorically) where hot and dry conditions will dominate.
What is the equivalent in portfolio construction? What is the foundational point of understanding the markets nowadays? And if we were able to understand that foundational point, what is the mechanism that could prevent wealth destruction?
In our humble understanding, there is a good chance that the foundational point of moving forward is a morphing nonlinear reality of rising entropy, fragility, and conflict (Atë). If that were the case, then portfolios require a defensive but significant (in terms of allocation) constant – a Metis – that will act like an anchor while the balance of holdings seeks growth and income.
Components of the defensive constant could be found in sectors such as:
When another pre-Socratic philosopher showed up, the cosmology derived from Greek religion had no job left for it. Heraclitus sought an unbreakable unity for the cosmos. What existed prior to his days was based on two principles: matter and soul. Heraclitus linked material and intelligent causation. Fire unified matter but fire was coextensive with Logos which held the universe together. In a universe of change, fragility, entropy, and conflict it was Logos that brought pattern, antifragility, and order. The opposites were stages of a process of constant change under the supervision of Logos.