Hope all that twittering last night didn’t annoy you. Honestly, it is amazing how both entertaining and self-indulgent it is to twitter about a political debate. I publish therefore I am. Particularly when drinking.
The New York Times has a great article today about the reign of terror on Wall Street. It is further evidence that the markets are not ruled by reason–at least not in the near term. Leverage accelerates these swings in mob mood.
So what is one to make of all this mob rule? More importantly what is likely to happen and what can be learned–beyond the obvious “buy low– sell high” wisdom of the ages?
Sounds like a good opportunity for an excerpt:
Understanding the impact of a given tribal shift requires a historical perspective on where patterns repeat and clarity about what’s new in this latest variation. Patterns never repeat exactly, but they do recycle. Accurate and timely forecasts depend upon finding what in the past has presaged the present, and what in the present is unique to its time and place.
In the pre-digital era, the cultural currency of tribes—what is valued by the tribe and why—was brought from hierarchical, centralized structures that dispensed it through prescribed modes of transaction, like money or communications media. In the digital era and beyond, the cultural myths and truths that tribes live by come to them along more decentralized and personal lines of communication. As much as the purveyor of the information shapes its content and meaning, so does the recipient, who also distorts or refines it in alignment with his tribal values and role in the tribe. The results are not unlike the end message in the telephone game played by kids at a birthday party; an initial message becomes modified each time it’s passed to or through the next individual, with the final outcome usually humorously dissimilar from the original.
Such results derive from influential input from many more members of a tribe than before, with the necessary conclusion being that the body of laws and customs and assumptions that the tribe endorses will be smaller, and possibly even less dogmatic in nature. They may also have much broader and more intelligent endorsement by the tribe’s members given the new ability to share and revise.
The insightful forecaster will recognize similar codes across tribes. She will translate them by finding analogues—codes in more familiar tribes that correspond to the ones she is viewing for the first time. She will convert the value of the tribe’s totems to determine whether those symbols are growing or diminishing in cultural currency. She will see the way to the tribe’s future by looking at it’s past.
The key here is finding the codes or totems that various investor tribes are seeing and reacting to. Can you see them? How about LIBOR (more on LIBOR and what it means to bankers here) and signals on inflation? Two year treasuries? These key signals are everywhere. When looking for change look for the signals that have been stuck to move. then your change will come. Where is the gloom and doom coming from? How long can gloom and doom be perpetuated particularly when there is no catastrophe to point to? Listen, unless there is another major terrorist attack, some bio-disaster, or some biblical calamity all this silliness has to swing back. Capitalism isn’t broken–greed is. Short of the aforementioned unknowable, we can be sure this too shall pass. The markets will rise to traditional value levels as they have for 150 years. Business is business– meanwhile the 24 hour news cycle is saved again! Stay tuned for more fear, or, search the web to confirm your own bias. After those fail you, look at the communication of those involved. You can see people beginning to question the legitimacy of the panic and pointing to formally ignored totems. They will use them as signs of stability but you, dear reader, will already be ahead of it.