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The Irony of the Market


It's ironic that billions are bet on premises - sometimes loosely held premises that are all but impossible to prove. But that's what makes the market - there are two sides to the market coin.

It's like rain on you wedding day
It's a free ride when you've already paid
It's that good advice that you just didn't take
Who would've thought…it figures.

Alanis Morrissete (Ironic)

To be sure, I'm no economist. I don't even play one on the internet. As a trader I'm not required to understand what's going on, I'm only required to make money. That doesn't mean as traders we don't become intellectually engaged as to the why and wherefore. But, as traders we learn that irrationality can last much longer then imagined. As traders we learn that asking the right question is often times more important then trying to figure out the right answers. As traders we learn that to survive we have to thrive on chaos and accept that answers are few and far between.

It's ironic. It's ironic that billions are bet on premises – sometimes loosely held premises that are all but impossible to prove. But that's what makes the market – there are two sides to the market coin.

Investing and speculation are as much art, if not more so, then science. It's ironic that recently the art market seems to be the symbol of success and power most prized and respected by those who toil in the laboratories of money making. They've been shaking their little money makers at Jasper Johns, Andy Warhols and Mark Rothkos lately as if they're Paris and Lindsey clubbing like it's 1999. Do fifty and one-hundred million dollar paintings reflect the value of the art or the degradation of the money that it is bought with? It's ironic that Andy Warhol's Velvet Underground rock group featured a peelable banana on the cover back in the 1960's. Well, welcome to the monkey house. Welcome to the Banana Republic of the United States. The only question I have is what happens when an eight hundred pound gorilla slips on a billion dollar banana peel?

When Warhol painted, the United States was the world's largest creditor. According to Morgan Stanley economist Steven Roach, in "1980 America's net international investment position - the broadest measure of the accumulated claim that the United States has on the rest of the world less those that the rest of the world has on the United States - stood at a surplus of 360 billion. By the end of 2003 that surplus had morphed into a deficit of negative 2.4 billion or 24% of GDP." Isn't it ironic that this transformation occurred over the period of the mother of all bull markets? Does it say something about excess spending and excess borrowing? It is ironic that at the bottom of the market in the early 1980's the United States was a surplus nation with relatively high rates and an economy that was ready to turn the corner. I don't understand it, but the dynamics are now a mirror image. I think it says something about credit and risk premium which are both a function of psychology and the not so "invisible hand."

Isn't it ironic that the bulls have had quite a party since March with ten year yields breaking out?

Isn't it ironic that the globalization paradigm underpinning the bullish narrative is facing off and slugging it out with the specter of trade sanctions with China?

Isn't it ironic that once former adversaries, China and Russia, now have a tremendous surplus, while the United States now carries massive deficits? Isn't it ironic that China doesn't have to fight us, they can just buy us?

Iran's president states that "The world will witness the destruction of Israel." Now that's a reason to be bullish isn't it? Isn't it ironic that the world is shrugging his statement off? You mean like they shrugged-off and pacified Hitler? Isn't it ironic that in this new paradigm of globalization, Putin has warned about retargeting Russian missiles toward Europe, and that state ownership of industry is making a comeback in Russia as at the same time the government there is taking hostile actions in regards to BP?

Isn't it ironic that the productivity paradigm and the technology paradigm of the 1990's had been replaced by the globalization paradigm as the bulls' mantra? Wasn't it ironic that Y2K proved to be a nonevent?


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