Monday, May 1, 2017

Quote/Message of the Day: We'll defer to the market...

Just finished James Owen Weatherall's The Physics of Wall Street. I found it fascinating, although I suspect others more tightly wed to Wall Street dogma have a number of understandable bones to pick with the brilliant young physicist, mathematician and philosopher.

I will say that I'm glad I didn't read the book back when it was published in January 2013. For, being so impressed with the author's intellect, I might have been swayed by his gloomy assessment of the global economy at the time. Per his epilogue:
As I finish this book in early 2012, the world economy still hasn't recovered from the 2008 crisis. If anything, it seems poised for another collapse, and no one expects matters to improve anytime soon. The Obama Administration has issued predictions that unemployment will hover around 8% through the end of 2012, with sluggish growth in GDP. Both political parties in the United States are simply repeating the same tried and failed policy proposals they've been trotting out for a generation. And it's not just the United States; most of Southern Europe is on the verge of default on its sovereign debt. And despite Germany's best efforts, it's hard to see how the Euro has a future. Even China and India have shown signs of slowing down. Prospects look dim for the world economy, and the most remarkable thing of all is that no one seems to have any ideas about how to fix it. 
 Actually, I wouldn't have been swayed. I learned many moons ago that not a brain, however brilliant, exists that can foretell (although Weatherall is more insinuating than he is prognosticating) the future of the economy or -- as is our interest here -- the financial markets.

Here's a look at the MSCI World Stock Index from when Mr. Weatherall completed his book to present:   click to enlarge...

I don't suspect -- given his perspective -- he would've foreseen a nearly 60% move in global equity markets over the ensuing 5 years.

And, clearly, he wasn't concerning himself with the type of simple trend analyses we do here:

Had he been, he might have added the following to his close:
"Now, while my above gloomy assessment reflects the global malaise I just outlined, the world's equity markets are beginning to show signs that things may not be all that they appear. Or, perhaps. showing signs that things may be on the cusp of turning for the better. The MSCI World Stock Index's 50, 100 and 200 day moving averages are showing signs of a bullish trend reversal. A sustained move above these key indicators could evolve into the classic scenario where the market foretells of coming macro improvement before it reflects in the on-the-ground data. In which case, rather than bracing for another collapse, probabilities would have investors buying (rather than selling [as my depiction would dictate]) global equities."
Not to discount Mr. Weatherall's excellent work -- again, I found it to be indeed instructive -- but when push comes to shove, we'll defer to the market's message over the academic's any day of the week.

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