This week’s post will be relatively short and sweet. I wrote a couple of weeks ago about the ‘Fog of Cycles’ and now much of the world has been enveloped by the ‘Fog of War.’ What a couple of weeks, with a sort of martial law declared in Canada, continued protests across various countries, including Austria, New Zealand, etc. Wrote the following as part of the December 22nd post:
But what complex system are we actually monitoring here? In my mind, financial markets are simply a manifestation of billions of flawed humans interacting, and a fractal of that larger system. My guess is that the recent avalanche in the most speculative market segments is indicative of that larger sand pile having already started, and that the broader US stock market will be a fractal down wind, as more and more markets get consumed by the invariant scaling.
Geopolitics is just another manifestation of the complex system which is humanity. There is reflexivity with markets, as political actors take supposed cues from markets and vice versa. Volatility has now spread into government bonds and credit, with commodities volatility cascading further. The fog of war has resulted in headlines and quotes from political actors catalyzing large moves in financial markets, as things like news reading algorithms trade in a Terminator-esque way.
This is where I find value in KISS’ing it - keep it simple, stupid. Go back to basics.
Leading economic indicators are still pointing down.
Growth is slowing to the point where a window of vulnerability to recessionary shock is probably opening. A European land war could certainly be a ‘shock’ but it is just a single known unknown. There are others, as well as unknown unknowns.
The sandpile concept is vital - signs of an ‘avalanche of humanity’ continue to scale - whether across financial markets or in capital cities across the globe.
Initial conditions entering this ‘avalanche’ were the most extreme in history.
Central banks remain directionally oriented towards inciting ‘financial violence’ rather than calming. Global liquidity remains firmly in a downtrend.
The fogs of cycle and war will continue to sow doubt and confusion, which is a good time to kiss it.