Friday, 31 October 2014
Financial beliefs are like a -
Someone very kindly posted this on a twitter feed about religion
Religion is like a penis
It's fine to have one.
It's fine to be proud of it.
But please don't whip it out in public and start waving it around.
And PLEASE don't try to thrust it on our children!
Now whilst not exactly new as a statement, indeed it has been used by friends in the most polite of manners when encountering evangelists from any religion at their doorstep, it had me thinking. Niether about religion of penises as it happened. But about markets.
If we think about this statement in terms of market beliefs rather than diety beliefs it does sort of sum up what I feel is a growing antithesis to having other people's market views rammed down your throat.
The similarities to market beliefs and religion are multiple. Let’s start with why people even bother to read other peoples opinions. It’s normally because they are lost and looking for substantiation of embryonic beliefs of their own that need a more solid structure for them to grow upon. Much as coral spawn prefers the support of an old wreck rather than growing alone on a sandy seabed. The provision of a structure on which to grow and hang one’s own beliefs upon gives a sense of structure and symbiotic social support to shelter within when facing the uncertainties of the world.
But what happens when some of the tenets of the religion you are hanging on to for your own psychological support are seen to be eroding when viewed in a dawning light of reality? This week we saw the catholic church, in fact the Pope himself, decreed that evolution and the Big Bang did occur, but after a quick repackaging under the legal terms of the religious contract it can still be seen to fit with the existence of God as the creator. It’s just that he did it a bit earlier than they first thought.
The back fitting of theory to fact sounds somewhat reminiscent of talking to an economist, market strategist or in particular a Elliot Wave technical analyst. Any new evidence that might at first be seen to contradict the original premise is shoe-horned to fit. Even if the resultant product looks like Pavarotti in a mankini. Yes, the theory may well be just about holding together but the bulgy bits around the edges leave those that came to worship the most beautiful of thought wondering if there is only so much botox, filler and liposuction that can be applied before the theory looks more like a, well, something unpleasant and not worthy of taking home to your mother.
So this is where we get back to what has been occurring in financial markets. The last six year have seen the crystallisation of two great religions. Those that expect the end of the financial world as we know it (put into this bucket the end of fiat moniests, stock market plungers, goldbugs and anyone who reads Zero Hedge and thinks it’s a balanced view on the world) and those that think that the great game will grind on and that new market highs in unexpected areas will occur again and that actually mankind has a habit of making sure that mean reversion plays out as this is actually the path to the least loss for mankind on the greater scale. Basically the churches of the black swan and the white swan.
When a religion becomes suspect it is natural for those that follows it to look for a new home into which to park their belief. As it was in 2007/8 when the church of the white swan was toppled by a few uncomfortable truths that had new followers queuing at the doors of the church of the black swan. Since then the church of the black swan has held sway during the Euro-crises and the catalogue of major newsworthy events that are normally communion wafers at their altar. Except something didn’t quite fit as the tails failed to occur and everything started to mean revert. Which meant that some of the black swan followers started to drift back to that of white swan again.
The two churches have had there odd rumble throughout 2014 with an EM crises, Putin, ISIS, QE ending and European growth flatlining etc, but it wasn’t until this October when old rivalries broke out into serious street rioting. Massive market schisms had the high priests from both camps back out and preaching from their soap boxes. The battle was fierce with financial markets taking one of the greatest short term pastings they have had in years. Only to recover.
Which leaves the followers of both cults back where they were when they first looked for a financial religion on to which to cling. Lost and confused. As the purpose of a religion is to remove the feelings of lostness and confusedness this is not the best return on a few years of heavy investment of belief. In fact it could be comparable to investing in many macro funds this year where they have sold a great story and can prove a great track record but at the end of the day they have yielded zero. A result that leaves the investor wondering if either side adds any real value with their opinions and perhaps it’s more valuable to work out your own (investment) morals from first principles rather than reading or listening to anyone else. Once again that can apply to deity or market beliefs.
The current noise of opinion may well see a backlash in a new belief in the self, a belief unexpressed, other than to be acted upon and I have a sneaking suspicion that readership numbers of financial blogs and bank research may be starting to substantiate that theory. The catch is, if you have read this far and believe any of what I have just written, then you have just proved me wrong.