On the Festival of Dangerous Ideas

With three more days of trading before this weekend’s Festival of Dangerous Ideas kicks off at the Sydney Opera House, some may wonder whether the recent drop in global equity markets will dominate the delivery by Paul Krugman. It would be a great shame if it did.

I have been ‘feeling’ a 3,000 mark correction in the Shanghai Index; however, where the index moves from here will depend on the confidence global investors have in global demand for Chinese exports and the ability for China to allow its stock markets to operate somewhat ‘efficiently’. Let’s look at where the drop happened:

A

The above and below charts are from Trading View, a free and simple tool to get a technical view of the markets. Comparing Hong Kong, Shanghai and Tokyo YoY, we can see that the greatest rise and fall has been that of Shanghai, yet the market is still up. In fact, the A-share index is up 46.60% YoY and the B-share index (B-share vs. MSCI) is up 24.42%. If a Chinese investor had been in a coma for a year, these figures would represent a respectable return. In comparison to Tokyo and Hong Kong? The Nikkei 225 is up 23.35% while the Hang Seng Index is down (-)13.16%.

B

If we look at the great rise and fall of Chinese equity prices, we can see that this is clearly an example of the Dead Cat Bounce. While I do not advocate for the likes of Mike Maloney, these individuals do provide caution and their ‘dangerous’ ideas are necessary when people are riding too far on the purchasing spree.

C

An even bigger question here is how we are going to ‘normalize’ the treasury yields, inflation expectations and interest rate horizon. While I’ve briefly highlighted Peter Coy’s The Death of Cash, we are moving into a new era where we need to rethink what is considered normal. As Charlie Munger highlighted in his speech The Psychology of Human Misjudgement, we are like:

  • “Each ant, like each human, is composed of a living physical structure plus behavioural algorithms in its nerve cells. In the ant’s case, the behavioural algorithms are few in number and almost entirely genetic in origin. The ant learn a little behaviour from experiences, but mostly it merely responds to ten or so stimuli with a few simple responses programmed into its nervous system by its genes, sometimes walk round and round until they perish.

I do not think the market is going to make much of a change until Friday. Referring to the Economic Calendar (Bloomberg and FX Street), I would say most upcoming announcements are not significant, except for the ECB’s monetary policy statement. I don’t think the upcoming NFP is going to change the Fed’s rate decision. I think that a hike in the Fed Funds rate is inevitable and the longer Yellen puts off this move the more irresponsible she is as the Chairwoman.

The Festival of Dangerous Ideas

Thanks to YouTube, ideas can spread quicker and wider around the world with access to the Internet. The Festival began in 2009 and has attracted prominent speakers, including Chomsky and Zizek. I look forward to hearing Krugman’s address.

Chomsky discusses the state of terror:

Zizek discusses perhaps one of his favourite topics:

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s