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The Search Is on for Wisdom in the Markets

05/16/2018 9:00 am EST


Robert Savage

Partner & CEO, CCTrack Solutions

The search is on for wisdom in markets. Looking at forecasts to determine the rest of 2018 is like asking the Delphic Oracle who will win the war, writes Bob Savage.

We all want to believe in efficiency, that the present price captures all facts and expectations of the moment, but the reality is clearly different. The only constant is change.

The recent weekend pilgrimage to Omaha for many investors in Berkshire Hathaway exemplifies the present obsession for finding alpha and yearning for pithy sayings by which to trade. The push up Apple (AAPL) shares because Warren Buffet added to his position shows the power of such.

The current sages of markets harken back to the ancients. There were seven sages in Ancient Greece – Thales of Miletus, Bias of Priene, Solon of Athens, Pittacus of Mytilene, Cleobulus of Lindos, Myson of Chenae and Chilon of Sparta – mentioned by Socrates in Plato’s Protagoras and celebrated in mosaics now shown in the National Museum of Beirut.

Their adages remain part of our culture for trading – “nothing in excess” or “to bring surety brings ruin” or “avoid responsibility for other’s debts.”

The lessons speak directly back to the larger global macro problem for markets – how to end the reliance on easy money, pushed by quantitative easing and negative rates, without destroying the ongoing recovery in confidence and economies post the great recession of 2008.

The focus for macro traders has been on emerging markets, global growth as shown through trade, inflation and the USD. The correlation of gold to risk has been significant as has the euro/Japanese yen (EUR/JPY) cross recently. Both are at interesting levels and make the next set of data and decisions and speeches from central bankers that much more important.

The fear of policy mistakes from governments or central bankers dominates not just developed markets but also emerging ones as their currencies and inflation risks explode. Rates and equities are in a difficult balancing act exemplifying the ongoing search for sustainable growth.

As we can see from the recent blow up of the Argentine peso (ARS) or from the Turkish lira (TRY), negative price actions in forex are hard to unwind with just interest rates.

Fiscal policy, trade, growth and your relations abroad all matter.

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