Whichever way it is looked at, to suggest that markets are rational is wrong.
Anyone who tells you otherwise is deluded, conning you, or stupid. You choose.
But Spud is right.
BTW, there’s a fun test of this theory. If Spud is right and markets are irrational then he should make a fortune trading against market prices. As we all also know Spud’s pension is in cash and has been for some time. That is, Spud doesn’t believe his own insistence about irrationality.
” If Spud is right and markets are irrational then he should make a fortune trading against market prices. ”
The market can remain irrational longer than you can remain solvent. Spud’s not wrong, the market can be irrational, for long periods, because the market is made up of people, and people can be (and quite often are) irrational. The market was irrational in 1999 and again in 2007, and I’d argue is again now. All the evidence was there that it was over estimating the future returns possible, but everyone ignored it because humans are herd animals. They stick with the herd until one eventually turns, then they all do. Rational they ain’t.
Spud issues a warning….
“I have been working on… couple of papers on the economics of tax…
This is the first of those papers. I admit it is long. There are almost 6,000 words in this post.”
Efficient markets hypothesis is our regulator’s core belief. So no free lunches, ever. So any debt we’ve rated ‘A’ should pay the same as everything else of the same duration rated ‘’A’. Given that’s not true they therefore assume we are cheating on our assessment of default risk. Strangely enough regulators are staffed by people who don’t take much risk. Coincidence?
His pension is in cash? I’d love to hear his rationale for that.
The problem isn’t whether markets are rational or irrational.
The problem is that what constitutes rational and irrational are subjective.
His pension is in cash? I’d love to hear his rationale for that.
It fits easily in his wallet?
Sort of what Dennis says… “The Market” is like an organism.
At the molecular level everything is marching along tightly according to the laws of physics and are entirely “rational”.
At biochemical level the competition between these processes becomes apparent, and everything turns into quite “irrational” chaos, where at best you can descern trends and equilibria.
At a cellular level that chaos evens out, and processes become more or less predictable, unless you push too hard. To the point where you can have billions of “carbon copies” with very little variation, which behave quite predictably and “rational” within their limits.
etc…
It entirely depends on what level and which angle you look at an “organism” like a Market whether it behaves “rational” or not.
The root engine of supply and demand is (mostly) rational.
The other root engine of competition makes the process irrational.
To have an entirely rational market you have to eradicate competition.
Which is, as we all know by now, the exact aim of the Elyan Potato.
The world’s central bankers are keeping interest rates high, which suggests that share prices should be low. They are also trying to create a recession, which should be reflected in stock market prices, but appears not to be. And as a matter of fact, there are considerable signs of stress throughout the world’s major economies.
High interest rates are why inflation is falling – and where does the correlation between low share prices and high internet rates come from? I’d agree there are considerable signs of stress in the world economy. Main causes are the responses to COVID and Net Zero, both of which Murphy enthusiastically supports
That stress is reflected in the rise of the far-right in the USA, the UK, and across Europe. Democracy is at risk.
It’s the ‘Far Right’ that pushed Net Zero and Climate Change? They brought in a city the size of Newcastle in the last six months?
Perhaps even more significantly than that for business, those far-right politicians are threatening the rule of law, and commerce is dependent upon it.
Says the man who wants to confiscate your pensions and savings for his own redistribution policies by law.
And, just to add a further issue, the International Court of Justice decided yesterday that the Israeli government has an obligation to end genocide, with a very clear indication that it is, at present, facilitating it.
He confirms his support for Hamas and clear opposition to Jews remaining alive in the Middle East. That such a policy doesn’t make him persona non grata says much about the Zeitgeist
As if to compound all this, it is very clear that mainstream economics and politics have no idea how to manage the crises that we are in: neoliberalism is out of road, and those who are addicted to it are so frightened of giving up the only theory that they know, meaning that they would rather the world suffer than admit that they were wrong all along.
The only thing they could do to make things worse is adopt Murphy’s policies
We are, to be blunt, in the middle of a crisis of staggering scale, and despite that US stock markets are hitting record highs.
There are there explanations.
One is that this all suits big multinational corporations very well. There is likely to be a very strong element of truth to that.
Those pesky Jews again – there was a famous 30s German politician who thought along the same lines
Second, those markets are acting entirely irrationally. They are dismissing the evidence of chaos all around them. There is likely to be an even stronger element of truth to that.
That could be true – I am guessing once the dust settles North Korea (closest state run along Murphy’s lines) will be manning the ramparts to prevent itself being overrun
Third, everything might fall over in the economy sometime soon. Unless central banks change course, that seems to be as close to a certainty as we can get in economic forecasting.
This is someone who has predicted the last 600 recessions since 2008
Whichever way it is looked at, to suggest that markets are rational is wrong.
Anyone who tells you otherwise is deluded, conning you, or stupid. You choose.
I am the way, the truth and the light…
Speaking as someone with cash & who plays markets successfully, I make my money out of the irrationality of markets. Bless their little cotton socks. May it ever continue & thrive.
As for Spud, you can’t even see rationality from where he is
Question: Does belief in the rationality of markets prove economists are irrational?
Jim,
But how long does that last? My feeling is that it’s about 2-3 years generally. I see stocks as having various types of investors, and many simply leap on bandwagons that are already in motion. And they’ll keep holding with confidence, even with a slip, but eventually, they’ll jump off.
And yes, we’re in a tech stock bubble. The average person writing about AI doesn’t know their arse from Tensor Flow, doesn’t have a clue about what AI actually does.
Hmmmm.
If something is rational, then it is more or less deterministic – with error bars, bien sur.
If it’s deterministic, it can be planned for – again, with error bars.
If it’s irrational, then almost certainly it’s non-determistic at all observable levels of detail, and no planning can work ever.
So he’s blown himself out of the water, as usual.
@ Western Bloke
“The average person…. doesn’t have a clue about what AI actually does.”
Is it something to do with creating fake porn featuring Taylor Swift?
“We are, to be blunt, in the middle of a crisis of staggering scale, and despite that US stock markets are hitting record highs.
There are there [sic] explanations.
…
Third, everything might fall over in the economy sometime soon.”
An example of the deranged writing of Spud. He gives as an EXPLANATION of why markets are high, that they might collapse soon.