When we open our doors again

We often project current trends in growth, in markets, in speed and rhythm, linearly, as though what is will be and thus into the future without friction. But there is always friction, always pressures onto the trajectory, from above and from below, from every which way, and the trend line is perpetually disrupted.

With the most forceful trend, sometimes, there comes the most forceful disruption. Just as in physics – every action has its equal and opposite reaction – so also in markets and economies, the patterns can turn pendular as swings occur to balance out the force.

Underneath it all, in markets and economies, the forces are shaped by interests. Sometimes these interests converge, which adds to the momentum, and sometimes these are shaped by differences in goals, in outlook, in resources and resourcefulness, in fears and hopes, in options.

There are multitudes of interests in economies and markets, and under normal circumstance these manifest themselves as a result in twists and broken lines and fractals. Sometimes, however, the movements are extreme, as is currently the case, when interests align but are at once confused and lacking in conviction.

This period, like others in the past, is likely to resolve into a much more stable pattern. It may look like a reversal, a reaction to the turbulence, where converged interests drive momentum in a positive direction…

BI

Or it may be a milder broken line of narrower twists and fewer turns, where varied interests are generally fearful, cloudy, and defensive for a while to come (as linearly projected in the two market commentaries below)…

WSJ
WSJ

In either case, the driving forces will be psychological, dominated by emotion, as we wake up from our seclusion and train our eyes to light and open space again. The re-adaptation may happen fast, or very slowly, and the difference will determine whether this was a Black Swan event or a lasting overhang that will define an era.

Magnitude is relative

There’s $2 trillion of economic aid in the works. The headline is big and loud, and the amount is monumental by any prior standard, but historic standards don’t apply for an event that is unprecedented. If the objective is to keep the economy from collapsing, the package may be a first step only.

WSJ

In Q4 2019, U.S. GDP was approximately $22 trillion – and there’s no economic rule to keep it just exactly where it is – but a gap filler of roughly 10% when the economy is largely shutting down doesn’t seem to be as filling as it could and probably should be.

Without considering the details of how and where the funds are being spent, the aggregate is probably far less than monetary and fiscal measures can sustain… in the home of the U.S. dollar, where inflation risks were low even before this mess began.

It really boils down to the duration of the fall and trajectory of the rebound. If long and relatively slow respectively, then the current measure may be a warmup exercise. Hopefully that’s the spirit in which it is being contemplated.

Interpreting the networks (cont'd)

Economics has always been a network study in essence, directly or indirectly related to network science. Economies have always been boosted by network expansions or improvements, in geographical discovery, in regional commerce, in transport efficiency, in communication, and in the financial systems that have over time evolved.

There have been periods of network disruption, such as in times of war, though these were seen to be more truly network transformations once the dust had settled. It’s also possible that such historic periods were triggered by network breakages or changes, rather than the other way around. The subject is complex, books have been written.

In the case of the present-day pandemic, there is a purposeful and global effort underway to disrupt the economic network on multiple levels. The reasoning is fundamentally sound, and the blueprint is expected to be temporary. The effect, however, is not predictable, in the economic or the globally behavioral sense, which are connected.

Networks are like organisms, even (or especially) the massive digital kind, which grow or shrink or change or otherwise react quickly. These are all complex multi-dimensional bodies that like biological systems may or may not respond to outside interference in known ways. Medicines, which may or may not work, usually if not always come with side effects, sometimes if not usually unexpected.

Markets (commercial and financial) are network systems, which in the past decade have become dominated by underlying networks in the field. In commerce, we recognize these best as the Big 5 (Apple, Google, Microsoft, Amazon, Facebook), but there are many others – internationally, domestically, locally – that have either been influenced or inspired by, dependent on, reacting to, the same technological and behavioral patterns that have birthed these giants.

Networks don’t easily break, even when forced to, but they do evolve. The former is an absolute, the latter is relative. In financial markets, multiple networks intersect and overlap – the money flows, the companies, the governing bodies, the messaging – which makes the real-time analysis exponentially more difficult.

But not impossible…

At least it’s not impossible to start, to watch the giants and the systems and to look for early signs. Not necessarily financially, although perhaps that too, but directionally, which relates to finance in the long-term anyway.

Someday, you know, this war is going to end. Related reading from a different time: Interpreting the networks.

This ain't no disco

This time of distancing and isolation, where science and technology are a constant background voice and many are left to wonder who knows what and when and how the knowledge is used or not and why… it feels a little like a Pynchon novel.

“A screaming comes across the sky. It has happened before, but there is nothing to compare it to now.” [Gravity’s Rainbow]

I’ve read (most of) all of them, in some cases more than once (in sections). His books are long and dense and atmospheric, and very beautiful. The one that I return to frequently, maybe because it’s his shortest and in a way most personal besides Inherent Vice (the movie adaptation of which is a worthy intro if you’re new to Pynchon and care to nibble), is The Crying of Lot 49.

Mucho Maas, home, bounded through the screen door. “Today was another defeat,” he began.

“Let me tell you,” she also began. But let Mucho go first.

This mix of almost slapstick comedy and extreme seriousness, told through the vantage points of rich and memorable characters, is typical Pynchon.

If you have extra time and space these days, like many others, I highly recommend…

… and also this, which feels similar in spirit:

Wall of Sound

One of the nicest aspects of this short-lived period is the opening song, the instruments mixed in layer by layer until the sound is just exactly perfect, as a whole, and listeners by then are trained to hear all of the components individually.

Wikipedia

It took a lot of work to set things up before the show and take down after, so the idea didn’t make it past year-end and the band’s subsequent long break.

In its full, the Wall of Sound debuted 46 years ago tomorrow, and this is the opening song.

It’s best to hear it with headphones if available, and relatively loud. Out of respect.