Nurse! The pills please!

Third, Gillian Tett (in easily the most interesting article) notes that since the 2008 crash a weird tendency has developed in all asset markets that they rise and fall in close correlation with each other. This has not been the long term trend, and is a characteristic only usually found in periods of great stress. She admits the causes are not wholly known, but maybe excess QE cash coup;led with integrated modern risk management that can reallocate capital quickly between markets are factors.

What really matters is the consequence: what has been created is a risk transmission mechanism that means there are no safe havens in the event of a down turn. So if copper prices fall so are other asset prices likely to do so. The implication is obvious: no one is immune from crashes in that case. We not only have globalisation, we have universalisation (my word, not Tett’s).

Put it all together and what do we have? Clueless markets traded by automatons in search of a consistent dream that something still might happen to restore their faith in rentierism. It’s not pretty.

No wonder I say it is time to think outside the constraints of the current markets. The solution is very obviously not within them.

The answer to market prices is not markets?

What?

18 thoughts on “Nurse! The pills please!”

  1. the markets are not giving the right* prices therefore the correct price must be decided by the Owl of Norfolk. In the same way that the election result wasn’t right* and must be replaced in the same way

    *one that the LHTD in his infinite wisdom approves of

  2. So if copper prices fall so are other asset prices likely to do so.

    He’s ignoring the elephant in the room: property. Governments have made it a core policy to destroy the entire economy in order to prop up house prices and ensure the Middle Classes feel like millionaires, it’s of little surprise that there are no other safe havens. If property was allowed to rise and fall along with everything else, we probably wouldn’t see so many billions being poured into it to the detriment of every other investment vehicle.

  3. He really doesn’t understand markets, does he?
    “if copper prices fall”
    Then if I was “integrated modern risk management that can reallocate capital quickly between markets ” I’d be intently looking at where these new, cheap copper prices are going to increase demand for copper & what other commodities might be needed when the copper gets used in whatever it’s used for.
    But, then, like a lot of people, he thinks markets are an end in themselves. Rather than just the reflection of the things being traded. Why you get “markets will…” followed by a lot of obscure maths & statistical bollocks based on historic something or other.

  4. TIm Newman

    You have nailed it completely – the deference towards homeowners is the root of so many of the problems in the economy its staggering – imagine if we got even 25% of the resources sunk into housing into other Markets – how many would benefit?

    Of course, in his defence – Murphy has the answer to this – he would nationalise all housing, thus at a stroke making the state responsible for its allocation – those who don’t like that would no doubt be unacceptable to ‘Civil Society’ and such people would be detained ‘for society’s benefit’ in camps where they could be put to productive work. I would guess they might be forced to where a symbol of some kind as well.

  5. No wonder I say it is time to think outside the constraints of the current markets. The solution is very obviously not within them.

    He doesn’t say it, but presumably his alternative is state-planning of everything from company investment to retirement. That worked out so well for the Soviets.

  6. “How can markets be “clueless”?”
    Because markets are clueless. They’re just the total expression of the cluefulness of the individual players.
    For instance, as any market must contain buyers & sellers, there must be two totally different views on price. One set lower than market. One higher. Or no trades.

  7. He doesn’t say it, but presumably his alternative is state-planning of everything from company investment to retirement. That worked out so well for the Soviets.

    It did, actually. In retirement, the average Soviet citizen was able to enjoy the same meagre rations of potato and cabbage as they did when they were a productive member of the Combine. Success!

  8. BiS
    I was making the point that referring to markets as ‘clueless’, as the Murphatollah does, suggests that markets have awareness, even agency. Market participants can be clueful or clueless; but markets themselves are abstractions, so applying epithets to them that imply supra-individual mental activity is meaningless, strictly speaking.

  9. he cannot comprehend that something can exist solely as the result of the interactions of millions of people. He has to believe it is one, single entity with purpose (malign, naturally).

    I wonder if he believes in evolution and if do, does he have any understanding of how it works? (Or believed to work).

  10. “he cannot comprehend that something can exist solely as the result of the interactions of millions of people.”
    Hardy unique though.
    Entire UK banking industry fails to appreciate it only takes a relatively few individuals to refrain from buying houses to send the UK property market into free-fall.
    Because markets reflect one simple thing. Confidence.

  11. So if copper prices fall so are other asset prices likely to do so. The implication is obvious: no one is immune from crashes in that case.

    Er, what? Is he not aware, then, that the way you make money out of a market is by correctly predicting the way it will move? Doesn’t matter whether it goes up or down; matters whether your prediction is right.

    BIS,

    > For instance, as any market must contain buyers & sellers, there must be two totally different views on price. One set lower than market. One higher. Or no trades.

    You’re conflating price with value.

  12. I’m going to take this opportunity to go only slightly (given this is principally a post about the psychopathic Murphy) off topic and not castigate the repulsive Sage of Norfolk in this comment.

    Instead, I’m going to say that I wouldn’t half like to give that Gillian Tett one. I even like that slight lisp she has.

  13. Bloke not in Cymru

    Now what might have been interesting was if he and Gillian had discussed the impact of automation and algorithms trading in markets and how much that had done to reduce variances across asset prices.

    His example is pretty stupid though as she is referring to general trends not specifics, I’m sure in any given day the markets in (say) sugar and copper can move in different directions, but over time they may well show a similar trend. This of course doesn’t mean causation which he is also implying, but I doubt he’s ever understood that correlation does not equal causation.

  14. Bloke in Costa Rica

    BniC: never understood that correlation does not equal causation? He’d have to know what they meant first. Can you imagine giving him two time-series vectors of price data for, say, sugar and copper and asking him to calculate their β? You’d get the same sort of head-tilting bafflement as asking a collie who wrote Crime and Punishment.

  15. I don’t know I’ve met some intelligent collies, might be more likely to get an answer from them

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