2024-05-24: Markets

Nebulous thoughts, I know; but I have to get them off my chest.

There are two things I cannot reconcile in the context of today’s benign and relaxed markets: their singularly focussed obsession with the imminent direction of monetary policies around the globe, and their lack of concern for important changes in the world’s order and functioning.

It’s true that the cost of money should have an impact on the pricing of assets: all else being equal, future cash flows discounted at lower rates result in higher present values. But things are never in an all-else-being-equal state, because events and expectations are always linked in feedback loops the direction and strength of which are impossible to gauge. Focusing on a single element of the present value equation (the discount rate) is superficial, especially when the factors potentially impacting future flows are new and different in complexity.

The difference in complexity is at least in part linked to the re-ordering of priorities, politics and game-changing power plays we are witnessing. What is happening in trade, global alliances, domestic politics within countries/regions, re-evaluation of democratic institutions and on the ground in Ukraine and Gaza (which the Russian-Iranian cooperation have linked) is very unsettling. I personally find it very difficult to shake off the gloom when I think of the future. But I appear to be alone, or certainly in the minority.

There is always a question, when thinking about markets and news, of what is important/relevant news and what is just noise. Most of the times the latter prevails, but not now. We are in the midst of a big re-ordering of priorities (and who controls them) which are going to be with us for many years to come. Interest rate concerns look to me like the classic tempest in the teapot in this context.

[Cover: Axios]