09 Jan DID BRINKMANSHIP WIN AGAIN?
Did Iran back down? Did brinkmanship win again? Only history will answer this question.
Perhaps the only certainty to write is the media/blogosphere is filled with official sounding but completely unsubstantiated reports. This is dangerous for no one knows the true reality.
It is often written those who control the media can greatly influence and perhaps control opinions and society. It is largely agreed the Third Reich’s Josef Goebbels was the greatest master ever of propaganda.
I will argue the massive proliferation of the blogosphere is the greatest global destabilizer. There is no attribution to any comments and the ability to validate one’s opinions has never been easier. As stated, the issue at hand is truth could be largely lacking.
What does the above have to do with the markets? Everything. An early Wednesday morning Bloomberg headline read “Algos Seized on Iran Headlines Focusing on Two Words…Attack and Iran.” The volatility was intense, markets are now back to pre-Iranian crisis levels of a week ago and I will now write the rising complacency is as intense as Tuesday night’s and the preceding week’s volatility.
It is generally accepted indexing is dominating market performance. Most other strategies have failed including the very popular “qaunt strategies” that take advantage of pricing discrepancies between asset classes aiming to spread risk equally across all asset spectrums. Legendary investor Warren Buffet is also struggling, lagging the indices by over 66%.
Passive investing will also fail but the question is as to when. Unfortunately the third law of physics also applies to the markets where for every action there is an opposite and equal and opposite reaction.
Commenting briefly on yesterday’s market action, equities advanced on Trump’s statements. Treasuries ended significantly lower in price, the result of Trump’s statements and a “very ugly ten year bond auction” where demand was more than one standard deviation below the one year average according to Bloomberg.
What will happen today?
Last night the foreign markets were up. London was up 0.52%, Paris up 0.35%, and Frankfurt up 1.21%. China was up 0.91%, Japan up 1.21% and Hang Sang up 1.68%.
The Dow should open nominally higher as it appeared all have taken a step back from a deeper military conflict in the Middle East. The 10-year is unchanged at 1.88%.