Given yesterday afternoon’s Ukrainian developments, we thought to start with the conclusion of today’s commentary:
Carl von Clausewitz addressed the issue of limited and absolute war in On War. The limited war is about observation as he puts it. The absolute war is about a decision to eliminate the opponent’s independence. In Milton’s epic Paradise Lost, we find a comprehensive analysis of strategy, modern warfare, intelligence, choices during war, and founding of a new polity. The Son becomes a visible expression of God, and the Son chooses not to be omnipotent or omniscient. God’s choice to send the Son is an act of consciousness, in order to preserve liberty and freedom. Satan cannot live with it, because of his jealousy and belligerence. He feels demoted, his pride cannot stand for the insult. He gathers an angelic band under pretext of consultations and proceeds to rouse them to rebellion. Satan displays what Hobbes in his Leviathan calls “perpetual and restless desire of power after power.” Two opposing grand strategies are at display: One aims at tempering power, the other at accumulating and aggrandizing power. The end of history is when the main author of history decides to deploy absolute war.
The arc of complexity runs high. The arc of idiocy runs even higher. When complexity merges with idiocy we have something unique: A manufactured but avoidable crisis that has nothing to do with black swans. Market developments and geopolitics have little to do with meteorology. What is taking place in the markets (equities and fixed income) as well as in Ukraine (and not only) is not like watching the weather turning. Someone told me recently that the other pandemic we are facing is stupidity. Geopolitical and market downswings and the potential crises that follow do not befall helpless nations just as a tornado or a tidal wave might. Geopolitics, geoeconomics, and market evolution is about choices made by politicians, central bankers, the financial industry, business persons, and investors. Choices presuppose foresight and judgment. The problem of course is that idiocy precludes both foresight and judgment.
“Sometimes I feel so low-down and disgusted
Can’t help but wonder what’s happenin’ to my companions?
Are they lost or are they found, have they counted the cost it’ll take to bring down
All their earthly principles they’re gonna have to abandon?
And there’s a slow, slow train comin’ up around the bend”
A relative recent example is the adoption of the Vasicek’s formula (a Czech-born mathematician) which made complex credit derivatives possible. Such adoption led to the creation of the so-called “Gaussian copula”, a.k.a. the formula that killed Wall Street during the financial crisis. The uncritical adoption of Vasicek’s work was equivalent of splitting the atom, making credit risk tradable. The tradable credit derivatives became the atomic power stations and the weaponized nuclear warheads of credit risk. All Wall Street and London – along with other financial centers – had to do was to drop those weapons from the so-called shadow banking system during an easy-money/accommodative monetary policy that Greenspan wanted to follow. The result? The financial crisis of 2007-’09.
Our first figure below shows the performance of indicative indexes and securities that represent the overall market. Year-to-date, the S&P 500 is down 8.57%, and the top Nasdaq companies are down more than 14%, while corporate investment-grade bonds, as well as long-term Treasuries, are down 6.5%. The only collective security/ETF with positive performance in our graph is the one of carbon futures.
The proximity of the sublime and the grotesque was one of the many great achievements and contributions of Victor Hugo. Giuseppe Verdi adopted that proximity in his well-known opera Rigoletto. A parody of that achievement was badly imitated in late 2001.
September 11, 2001, is a day that will live in infamy, like the one on December 7, 1941. The problem is that December 11, 2001 (exactly three months after 9/11) was a day whose consequences we still pay. That’s another day that few discuss as a day of infamy. That was the day that the WTO admitted China in its membership. China’s admission into the WTO changed the game for the US, the EU, and most of Asia. Some would argue that more people’s lives have been ruined because of that than the horrible attacks on 9/11.
Where was the much-needed foresight and geostrategy then? How difficult was it to foresee that a powerful combination of a huge workforce, the liberalization of capital and tech transfers, and a stiff illiberal and human-suffocating ideology will produce a crisis, especially if China’s rogue power merges with another rogue state actor such as Russia? And if that could not be foreseen, where were the hedges, just in case?
“Man’s ego is inflated, his laws are outdated, they don’t apply no more
You can’t rely no more to be standin’ around waitin
‘In the home of the brave, Jefferson turnin’ over in his grave
Fools glorifying themselves, trying to manipulate Satan
And there’s a slow, slow train comin’ up around the bend”
In the 1990s and in the early 2000s, the West lost its moral compass and convictions, especially when it was looking for weapons of mass deception. Unlike Dostoevsky’s Idiot, the West in those critical fifteen years lost its sacred convictions, its ideals, its purpose, and its direction. Prince Lev Nikolayevich Myshkin (the protagonist in Dostoevsky’s novel) did not experience an identity crisis. Others think of him as an idiot, but the real idiocy lies in their lack of foresight and judgment.
But couldn’t we say the same thing when we assess the situation in Ukraine today? Didn’t we know (especially after the 2014 annexation of Crimea) that Putin is all about himself and power? Hasn’t it been well-documented that his regime is kleptocratic and repressive? Yesterday, in the mid-afternoon, Russia announced that it will recognize the two breakaway regions in eastern Ukraine as independent states and will be sending “peacekeepers”. There is absolutely no doubt that this is a violation of Ukrainian sovereignty and represents nothing but a fundamental violation of international agreements and law.
Could this be the exit escape/saving face that Putin was looking for and that the West can tolerate without being accused of appeasement? If that is the case, then we are of the opinion that the West, while preparing for an absolute war, should apply Machiavellian tactics (we let the readers’ imaginations conceive what those might be), and we will reiterate our position that Putin wouldn’t dare to invade Ukraine any further (bullies, when their bluff is called, will double down on their bullying as is happening in the last 5-6 days), and the crisis will deflate. Having said that, we are also of the opinion that if he has China’s back, then he may endeavor into war in a joint effort with China to change the balance of power. What are the hedges in that case?
The four forces that have pushed the markets in a downward trajectory are:
a. The rising yields/forthcoming higher rates;
b. The quantitative tightening that the Fed will most probably be forced to implement due to inflationary pressures;
c. The frothy valuations in the midst of high debts and extraordinary leverage in an environment that is much different than the one during the financial crisis; and
d. The possibility of a major war that will jeopardize the European security apparatus if not the global balance of power.
Bond investors are looking for cover via purchasing Puts in the two most liquid ETFs, as shown below.
Verdi’s Rigoletto turned convictions on its head. The ruler is shown to be immoral. A deformed man becomes a protagonist with a character of depth. A Romani woman is not about fortune telling and dance. On the contrary, she becomes a heroine. The vibrant rhythmic thrust is combined with an operatic vocalism that inspires the audience as it listens to the high notes. Everything is there: Love, hate, ecstatic joy, vengeance, murder, violence, and death. The story resonates with today’s themes: the struggle of nations against a pandemic, the sting of belligerent and egotistical “leaders” who deprive their people of what is due to them, racism, the unknown tomorrow, the risks and death that were avoidable if it were not for that belligerent and egotistical “leader” who has killed the heroine’s mother and who is also responsible for the death of her own baby. Catharsis comes when at the end Azucena (the heroine) cries out that her mother is avenged: di Luna (the belligerent egotistical leader) kills his own brother.
“Big-time negotiators, false healers and woman haters
Masters of the bluff and masters of the proposition
But the enemy I see wears a cloak of decency
All non-believers and men stealers talkin’ in the name of religion
And there’s a slow, slow train comin’ up around the bend”
Carl von Clausewitz addressed the issue of limited and absolute war inOn War. The limited war is about observation as he puts it. The absolute war is about a decision to eliminate the opponent’s independence. In Milton’s epic Paradise Lost, we find a comprehensive analysis of strategy, modern warfare, intelligence, choices during war, and founding of a new polity. The Son becomes a visible expression of God, and the Son chooses not to be omnipotent or omniscient. God’s choice to send the Son is an act of consciousness, in order to preserve liberty and freedom. Satan cannot live with it, because of his jealousy and belligerence. He feels demoted, his pride cannot stand for the insult. He gathers an angelic band under pretext of consultations and proceeds to rouse them to rebellion. Satan displays what Hobbes in his Leviathan calls “perpetual and restless desire of power after power.” Two opposing grand strategies are at display: One aims at tempering power, the other at accumulating and aggrandizing power. The end of history is when the main author of history decides to deploy absolute war.
When the Arcs of Complexity and Idiocy Merge: Market Echoes at the Juncture Point Where Milton and Verdi Met Putin
Author : John E. Charalambakis
Date : February 22, 2022
Given yesterday afternoon’s Ukrainian developments, we thought to start with the conclusion of today’s commentary:
Carl von Clausewitz addressed the issue of limited and absolute war in On War. The limited war is about observation as he puts it. The absolute war is about a decision to eliminate the opponent’s independence. In Milton’s epic Paradise Lost, we find a comprehensive analysis of strategy, modern warfare, intelligence, choices during war, and founding of a new polity. The Son becomes a visible expression of God, and the Son chooses not to be omnipotent or omniscient. God’s choice to send the Son is an act of consciousness, in order to preserve liberty and freedom. Satan cannot live with it, because of his jealousy and belligerence. He feels demoted, his pride cannot stand for the insult. He gathers an angelic band under pretext of consultations and proceeds to rouse them to rebellion. Satan displays what Hobbes in his Leviathan calls “perpetual and restless desire of power after power.” Two opposing grand strategies are at display: One aims at tempering power, the other at accumulating and aggrandizing power. The end of history is when the main author of history decides to deploy absolute war.
The arc of complexity runs high. The arc of idiocy runs even higher. When complexity merges with idiocy we have something unique: A manufactured but avoidable crisis that has nothing to do with black swans. Market developments and geopolitics have little to do with meteorology. What is taking place in the markets (equities and fixed income) as well as in Ukraine (and not only) is not like watching the weather turning. Someone told me recently that the other pandemic we are facing is stupidity. Geopolitical and market downswings and the potential crises that follow do not befall helpless nations just as a tornado or a tidal wave might. Geopolitics, geoeconomics, and market evolution is about choices made by politicians, central bankers, the financial industry, business persons, and investors. Choices presuppose foresight and judgment. The problem of course is that idiocy precludes both foresight and judgment.
“Sometimes I feel so low-down and disgusted
Can’t help but wonder what’s happenin’ to my companions?
Are they lost or are they found, have they counted the cost it’ll take to bring down
All their earthly principles they’re gonna have to abandon?
And there’s a slow, slow train comin’ up around the bend”
A relative recent example is the adoption of the Vasicek’s formula (a Czech-born mathematician) which made complex credit derivatives possible. Such adoption led to the creation of the so-called “Gaussian copula”, a.k.a. the formula that killed Wall Street during the financial crisis. The uncritical adoption of Vasicek’s work was equivalent of splitting the atom, making credit risk tradable. The tradable credit derivatives became the atomic power stations and the weaponized nuclear warheads of credit risk. All Wall Street and London – along with other financial centers – had to do was to drop those weapons from the so-called shadow banking system during an easy-money/accommodative monetary policy that Greenspan wanted to follow. The result? The financial crisis of 2007-’09.
Our first figure below shows the performance of indicative indexes and securities that represent the overall market. Year-to-date, the S&P 500 is down 8.57%, and the top Nasdaq companies are down more than 14%, while corporate investment-grade bonds, as well as long-term Treasuries, are down 6.5%. The only collective security/ETF with positive performance in our graph is the one of carbon futures.
The proximity of the sublime and the grotesque was one of the many great achievements and contributions of Victor Hugo. Giuseppe Verdi adopted that proximity in his well-known opera Rigoletto. A parody of that achievement was badly imitated in late 2001.
September 11, 2001, is a day that will live in infamy, like the one on December 7, 1941. The problem is that December 11, 2001 (exactly three months after 9/11) was a day whose consequences we still pay. That’s another day that few discuss as a day of infamy. That was the day that the WTO admitted China in its membership. China’s admission into the WTO changed the game for the US, the EU, and most of Asia. Some would argue that more people’s lives have been ruined because of that than the horrible attacks on 9/11.
Where was the much-needed foresight and geostrategy then? How difficult was it to foresee that a powerful combination of a huge workforce, the liberalization of capital and tech transfers, and a stiff illiberal and human-suffocating ideology will produce a crisis, especially if China’s rogue power merges with another rogue state actor such as Russia? And if that could not be foreseen, where were the hedges, just in case?
“Man’s ego is inflated, his laws are outdated, they don’t apply no more
You can’t rely no more to be standin’ around waitin
‘In the home of the brave, Jefferson turnin’ over in his grave
Fools glorifying themselves, trying to manipulate Satan
And there’s a slow, slow train comin’ up around the bend”
In the 1990s and in the early 2000s, the West lost its moral compass and convictions, especially when it was looking for weapons of mass deception. Unlike Dostoevsky’s Idiot, the West in those critical fifteen years lost its sacred convictions, its ideals, its purpose, and its direction. Prince Lev Nikolayevich Myshkin (the protagonist in Dostoevsky’s novel) did not experience an identity crisis. Others think of him as an idiot, but the real idiocy lies in their lack of foresight and judgment.
But couldn’t we say the same thing when we assess the situation in Ukraine today? Didn’t we know (especially after the 2014 annexation of Crimea) that Putin is all about himself and power? Hasn’t it been well-documented that his regime is kleptocratic and repressive? Yesterday, in the mid-afternoon, Russia announced that it will recognize the two breakaway regions in eastern Ukraine as independent states and will be sending “peacekeepers”. There is absolutely no doubt that this is a violation of Ukrainian sovereignty and represents nothing but a fundamental violation of international agreements and law.
Could this be the exit escape/saving face that Putin was looking for and that the West can tolerate without being accused of appeasement? If that is the case, then we are of the opinion that the West, while preparing for an absolute war, should apply Machiavellian tactics (we let the readers’ imaginations conceive what those might be), and we will reiterate our position that Putin wouldn’t dare to invade Ukraine any further (bullies, when their bluff is called, will double down on their bullying as is happening in the last 5-6 days), and the crisis will deflate. Having said that, we are also of the opinion that if he has China’s back, then he may endeavor into war in a joint effort with China to change the balance of power. What are the hedges in that case?
The four forces that have pushed the markets in a downward trajectory are:
a. The rising yields/forthcoming higher rates;
b. The quantitative tightening that the Fed will most probably be forced to implement due to inflationary pressures;
c. The frothy valuations in the midst of high debts and extraordinary leverage in an environment that is much different than the one during the financial crisis; and
d. The possibility of a major war that will jeopardize the European security apparatus if not the global balance of power.
Bond investors are looking for cover via purchasing Puts in the two most liquid ETFs, as shown below.
Verdi’s Rigoletto turned convictions on its head. The ruler is shown to be immoral. A deformed man becomes a protagonist with a character of depth. A Romani woman is not about fortune telling and dance. On the contrary, she becomes a heroine. The vibrant rhythmic thrust is combined with an operatic vocalism that inspires the audience as it listens to the high notes. Everything is there: Love, hate, ecstatic joy, vengeance, murder, violence, and death. The story resonates with today’s themes: the struggle of nations against a pandemic, the sting of belligerent and egotistical “leaders” who deprive their people of what is due to them, racism, the unknown tomorrow, the risks and death that were avoidable if it were not for that belligerent and egotistical “leader” who has killed the heroine’s mother and who is also responsible for the death of her own baby. Catharsis comes when at the end Azucena (the heroine) cries out that her mother is avenged: di Luna (the belligerent egotistical leader) kills his own brother.
“Big-time negotiators, false healers and woman haters
Masters of the bluff and masters of the proposition
But the enemy I see wears a cloak of decency
All non-believers and men stealers talkin’ in the name of religion
And there’s a slow, slow train comin’ up around the bend”
Carl von Clausewitz addressed the issue of limited and absolute war in On War. The limited war is about observation as he puts it. The absolute war is about a decision to eliminate the opponent’s independence. In Milton’s epic Paradise Lost, we find a comprehensive analysis of strategy, modern warfare, intelligence, choices during war, and founding of a new polity. The Son becomes a visible expression of God, and the Son chooses not to be omnipotent or omniscient. God’s choice to send the Son is an act of consciousness, in order to preserve liberty and freedom. Satan cannot live with it, because of his jealousy and belligerence. He feels demoted, his pride cannot stand for the insult. He gathers an angelic band under pretext of consultations and proceeds to rouse them to rebellion. Satan displays what Hobbes in his Leviathan calls “perpetual and restless desire of power after power.” Two opposing grand strategies are at display: One aims at tempering power, the other at accumulating and aggrandizing power. The end of history is when the main author of history decides to deploy absolute war.
There is a slow train coming…
Bob Dylan – Slow Train (Live from San Francisco, 1979) – Bing video