Speculating About the Speculators
- Karl Johansson
- för 2 dagar sedan
- 3 min läsning
Financial markets should not be fine with what's happening in the strait of Hormuz. Am I so out of touch? No it's the bankers who are wrong.
American financial markets are not working as intended. At a time when the global economy is hostage to the Iranian Revolutionary Guards Corps American indices reached the same levels as before the war on the news that noted liar president Trump said a deal with Iran was close. What is going on?
The first point which needs making is that finance is quite important to the American economy, indeed unproportionately so compared to other advanced economies. The American markets are so big and liquid as to be the envy of the world, and as such display some unique characteristics due to how much foreigners invest in stocks, bonds, futures, and derivatives in New York. There is a clear TINA (there is no alternative) dynamic which becomes more acute in times of crisis, as most investors would probably prefer to own American assets over assets in the Persian Gulf. Still, all signs point to worse economic times ahead in and outside America, which should put a dampener on optimism in financial markets.
The real reason why markets are up is that markets have lost touch with the real world. Stocks are up because stocks always go up which in turn makes it logical to bid up prices on stocks. The intricate theories of financial economics like the efficient market hypothesis has come under prodigious strain since the pandemic where all manner of bizarrities have transpired; the ”infinite money glitch” of Bitcoin treasury companies, the financial death cult of bed bath & beyond and Teddy day, the $5 trillion value of the metaverse, the explosion of private equity firms popping up to the point of being more PE firms than McDonald's, the endless money pit of the AI data centre buildout.
Generally, proclaiming that a leader’s or a system’s actions make no sense and can only be explained by madness is an analytical cop-out of the highest order. I don’t invoke it casually or thoughtlessly. I do so because I have no recourse.
If a layman like me can spot the impending energy catastrophe that is a two month closure of the strait of Hormuz, there is absolutely no reason why the market wizards, captains of industry, and masters of the universe on Wall Street with their army of political and geopolitical analysts shouldn’t have seen it too.
I risk ending up with egg on my face if there is a peace deal announced later today. But if I’m right and American finance is wrong - if the strait remains closed, the ceasefire lapses or breaks down and hostilities resumes with an American escalation - then what other explanation is there other than that the markets have lost touch with reality?
If you liked this post you can read a previous post about the war in Iran here or the rest of my writings here. I also have a section for longer reads I call essays here, I particularly recommend my series called The Bird & The Technoking exploring Elon Musk's takeover of Twitter, and its political and cultural implications. It'd mean a lot to me if you recommended the blog to a friend or coworker. Come back next Monday for a new post!
I've always been interested in politics, economics, and the interplay between. The blog is a place for me to explore different ideas and concepts relating to economics or politics, be that national or international. The goal for the blog is to make you think; to provide new perspectives.
Written by Karl Johansson
Sources:
Cover photo by Romulo Queiroz from Pexels, edited by Karl Johansson
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