Remember when some fella attacked the bull sculpture on Wall Street with a banjo last year?
We mentioned it in this letter at the time – The banjo player and the bull market golden calf (10 September 2019).
We wondered whether this was a selling signal, but concluded that it was simply another indicator that we were in one of the most hated bull markets in history, and a melt-up was still to come.
We got the melt-up part right – until the WuFlu showed up with a much larger banjo.
But now, the bull has had another high-profile visit. On Friday, an opportunistic young lady took advantage of the lack of tourists in the area to brazenly ride the bull while naked (I say naked – she wore a cowboy hat and boots. And a scarf).
What kind of signal is this? That we’re in a “bare” market?
I’ll leave that chart to your imagination… and I’ll be asking Nick Hubble what the significance of this perverse rodeo means in .
Au naturel
Charlie Allnut: A man takes a drop too much once in a while, it’s only human nature.
Rose Sayer: Nature, Mr. Allnut, is what we are put in this world to rise above.
– The African Queen (1951)
Markets are classically subject to the throes of human nature – fuelled and crushed by fear and greed.
This emotional force on prices has been distorted in recent years by the increasing participation of machines trading in the market and the adoption of passive investing strategies, where there is no man directly “at the wheel” to express a market view that is driven by his emotions.
But this does not reduce the impact of emotion on markets – it only makes their expression more violent when they finally come: when the person with the algorithmic trading program becomes overwhelmed by the losses they’re making, and switches it off, for example. Or when the passive investor decides following the market isn’t actually all that great of an idea when the market is getting its ass handed to it, and sells their tracker fund to get into cash.
These sudden realisations and consequent sudden investment decisions make the expression of human nature within markets only more extreme when they finally arrive.
It’s our human nature, this compulsion to surrender under extreme circumstances to extreme decisions, the character of Rose Sayer (played by Katharine Hepburn) would tell you to rise above. As I was scribbling in this letter just a little prior to the market crash, it’s paramount to have an exit plan for the end of a bull market – so you can stick to it and not act rashly in the face of calamity.
Even if the compulsions and reactions of human nature you are trying to avoid are a product of nature itself…
Impossible to predict, impossible to ignore
Charlie Allnut: You can’t do that!
Rose Sayer: How do you know? You never tried it.
Charlie Allnut: Well yeah, but I never tried shooting myself in the head neither.
– Trader telling a colleague that she’s going to buy shares in Deutsche Bank ($DB) The African Queen (1951)
The African Queen isn’t only a good source of quotes. The film unintentionally changed Britain’s ecosystem too. But had you been watched the film at the cinema back in the 50s, you’d need to be damned near a prophet to have guessed it.
Almost 70 years later, I can see the effect all over the place.
If you’re reading this while cooped up under the lockdown right now, I hope you’re staying safe and keeping your spirits up, both in terms of morale and your alcohol supplies.
My decision to move into my tiny flat purely for its access to the roof and the view that provides is finally paying off; I can escape the confines of the indoors during lockdown to work, and absorb some of the sun when it shows its face – lord knows we’ll all be running a severe vitamin D deficit once this is all over. I’m writing this from the roof, where I’m fortunate enough to have a view of Wembley stadium, the V&A, and the Royal Albert Hall while still working from home.
However, soon after moving down to London from Aberdeen and taking up residence here, I noticed something was odd with the local wildlife. Flitting low over the rooftops at great speed with emerald green plumage and long thin tails… are swarms of parrots.
They sound as exotic as they look – they don’t chirp or crow but make excitable squeaking sounds as they swoop about one another. And they’re all over the place: I’ve seen groups of as many as nine at a time zooming among the houses and trees, and I’ve no doubt they swarm in larger numbers elsewhere.
They’re not indigenous of course – they sure as hell don’t make ‘em like that over here! They’re ring-necked parakeets – a species native to India and some African countries. And they got here when a film studio in Ealing brought some over when they were making a certain movie – The African Queen – and were either released or escaped.
(So the story goes, at least. There’s some competing “creation myths” for the parakeet phenomenon in the UK, including the theory that the population began with Jimi Hendrix releasing a pair he was keeping as pets in London in the 60s. Indeed, you can’t actually see any parakeets in The African Queen though a zoologist has recently claimed the theory has merit.)
You certainly don’t get these in Aberdeen – though apparently some of them have even made it as far north as Dundee. There are tens of thousands of them in the UK now, and they continue to multiply. The incredible spread of these birds throughout the country – which some might even call viral – threatens the native ecosystem, and there are calls to cull the population.
Spain has taken this very hard-line approach to the spread of non-native parakeets (which includes the monk parakeet as well as the rose-ringed parakeet), and plans to cull almost all of them in Madrid in October. The UK government has so far said that the problem is simply too large to do anything about, and that attempting to control the population of birds would be too expensive and too disruptive.
Does that sound familiar to you by any chance?
Nature’s revenge
Now to be clear, the main drive of today’s note is not to evaluate and compare the responses of governments to the WuFlu. I point it out as it’s a scenario where nature, compounded by human nature, has created an outcome with far-reaching implications – which nobody could have guessed ahead of time. Who would have predicted that England would be swarming with parrots after they’d just come out of a showing of The African Queen?
And who, in mid-2019, was predicting a pandemic in 2020? While pandemic risk has always been on the table, the disruption coronavirus has created within governments and supranational organisations like the World Health Organisation… in the stock, bond, commodity, and credit markets… and in the behaviour of our fellow citizens, has clearly illustrated that this risk was not expected or prepared for.
My mind was drawn to the parakeets after I had a conversation with Robin Griffiths over at Dynamic Investment Trends Alert. Robin has more experience in financial markets than anybody else I have ever met. He started working in the City when Harold Wilson was still prime minister, Lyndon B. Johnson was US president, and Simon & Garfunkel’s The Sound of Silence had only just made it to No.1 on the charts (in fact, I should probably ask him if he saw any parakeets in London back then, as some folks think the parakeets only showed up in the 70s…). He’s also just a fascinating character – he’s circumnavigated the world by sail but doesn’t like saying that because he took the Panama Canal and thinks that’s cheating.
But he told me last week that this is the first “global co-ordinated negative event” that he’s seen in his entire career. What made it so unique to him is that while the virus is supposedly caused by somebody in China eating bats, the virus is ultimately a product of biology – nature.
Man is not very good at controlling nature, said Robin – and he’s a sailor. He thinks there’s a lot more pain to come yet, with the dawn only arriving in 2022…
While coronavirus appears to have driven the market turmoil, it’s the knock-on effect of bankruptcies that threaten to pose the real crisis. And we’ve not seen those yet.
Pretty much all of the financial engineering that has gone on over the past decade was created with the opposite of economic lockdowns in mind: private equity ventures throwing piles of money into any business venture that might work using vast quantities of debt, large companies “leveraging their balance sheets” (borrowing to pursue scale over efficiency), shorting volatility (betting that tomorrow will be the same as today) – the list goes on. When this all must be unwound in very rapid fashion, when debts must suddenly be paid and each day is not the same as the one before, there will ample fear to go around.
As unpredictable as mother nature can be, our own nature is under our control, and as Katharine Hepburn said all those years ago, it’s up to us to rise above it. I’m hardly a model for this in the original sense (where alcohol is concerned), however the aim of this letter is always to look one step ahead, and to peep behind the curtain when we can see exactly where we might be going rather than just “living in the moment”.
The aim of Capital & Conflict is to be one of those green parakeets, sweeping ahead and around a mainstream financial industry it’s not native to, threatening to disrupt it (hopefully not culled), and making plenty of entertaining noise all the while. That’s my goal for it, anyhow.
Tomorrow, we’ll take a closer look into that dollar shortage I was on about last week, and how it threatens to pour accelerant on an already volatile situation. Charts and whatnot complimentary.
Until then,
Boaz Shoshan
Editor, Capital & Conflict
For charts and other financial/geopolitical content, follow me on Twitter: @FederalExcess.
Category: Market updates