We are bombarded with risk warnings, with costs and restrictions that we're told are for our own good. Is this correct? It’s time to take The Sniff Test.
For any readers who do not know, VIX is an index that represents near term expectations for volatility in the US stock market. The higher it is the greater the belief in sharp price moves, which we might call risk. VIX is known as Wall Street's fear gauge.
When the Allies were planning the post WW2 western economy and proposed the commitment to full employment , the Polish economist Mikhail Kalecki in 1943 said in his paper on full employment, words to the effect that 'yes great idea but there's a problem You will create an inflation hothouse fuelled by wages spiralling as it becomes costless to move from one job to another'
Not only was Kalecki proven correct 30 plus years later as the post war consensus gave away to Thatcherism and the neo liberal reset, but the question is, had the wider population been aware of Kalecki's thoughts, would the trade union movement have been as emboldened as it was to drive their agenda to make Kalecki's point for him ?
Are Black Swan events really so, or just another example of withheld information to either buy time to try and prevent the inevitable, or because all was planned ? The Big Short makes this point very well as Michael Burry saw from circa late 2005/early 2006 that the US housing market was so over leveraged that a rise in Fed rates would trigger a wave of defaults leading to a housing market crash and potentially an economic meltdown. Even he said, 'the information was all there Everyone can see it' Except the usual sources of information (mainstream media) made no mention of it until it was too late
So was Michael Burry a risk taker ? After all he traded on the back of publicly available but not disseminated information and his position only had to remain solvent longer than the market remained irrational ! Were either Buffet or Soros really risk takers or just in a position to respond to publicly available information not disseminated ?
When the so called uneducated (according to the political establishment) masses voted to leave the EU, the shock could be felt far and wide because those usually in possession of all the information, briefly had none as they assumed remain would win. Whether the leave vote was informed or not is open to debate. But what is indubitable is voting turnout at elections is in decline signalling a widespread dissatisfaction with the political establishment and the EU vote was the opportunity to make this point and of course “educated” Richmond et al voted to remain
As Margaret Thatcher alluded, with freedom and knowledge comes responsibility and its been evident since 2016 that the last thing the establishment want is the masses taking risks
Information as propaganda is a main theme of The Sniff Test. The truth is hiding in plain sight, but we are impulsive, sensation seeking creatures who are easily distracted by the readily consumable or an authority figure. Outside of Richmond, of course.
The suppression of risk for the masses, in bailouts of failed companies and industries, in the rise of government-funded employment, in a cookie-cutter pensions industry dressed up as choice, and more, is itself a significant risk.
Just as when suppression of wildfires to protect holiday homes leaves the fuel in place for devastating blazes in future years, addressing the symptoms of risk does not remove it.
Taleb's argument is that there are risks we can never see, regardless of how reassuring our models are. But what he means by a black swan has become twisted to explain every time the models don't work, which is often because they ignored data that didn't fit the narrative.
As a philosopher once remarked, ‘we are a poorly evolved mammalian species. The adrenalin gland is too big and the pre frontal cortex too small ‘
I remember post the 2008 meltdown when VIX hit a record high of 82 before retreating to the low 60s which, with no hint of self awareness, some strategists actually determined was a buy signal...despite there being no historical equivalent pattern
Today VIX is at 13.5 despite the collective west submerging under unpayable debts, rising social strife, de dollarisation and the prospect of a NATO Russia conflict
For any readers who do not know, VIX is an index that represents near term expectations for volatility in the US stock market. The higher it is the greater the belief in sharp price moves, which we might call risk. VIX is known as Wall Street's fear gauge.
When the Allies were planning the post WW2 western economy and proposed the commitment to full employment , the Polish economist Mikhail Kalecki in 1943 said in his paper on full employment, words to the effect that 'yes great idea but there's a problem You will create an inflation hothouse fuelled by wages spiralling as it becomes costless to move from one job to another'
Not only was Kalecki proven correct 30 plus years later as the post war consensus gave away to Thatcherism and the neo liberal reset, but the question is, had the wider population been aware of Kalecki's thoughts, would the trade union movement have been as emboldened as it was to drive their agenda to make Kalecki's point for him ?
Are Black Swan events really so, or just another example of withheld information to either buy time to try and prevent the inevitable, or because all was planned ? The Big Short makes this point very well as Michael Burry saw from circa late 2005/early 2006 that the US housing market was so over leveraged that a rise in Fed rates would trigger a wave of defaults leading to a housing market crash and potentially an economic meltdown. Even he said, 'the information was all there Everyone can see it' Except the usual sources of information (mainstream media) made no mention of it until it was too late
So was Michael Burry a risk taker ? After all he traded on the back of publicly available but not disseminated information and his position only had to remain solvent longer than the market remained irrational ! Were either Buffet or Soros really risk takers or just in a position to respond to publicly available information not disseminated ?
When the so called uneducated (according to the political establishment) masses voted to leave the EU, the shock could be felt far and wide because those usually in possession of all the information, briefly had none as they assumed remain would win. Whether the leave vote was informed or not is open to debate. But what is indubitable is voting turnout at elections is in decline signalling a widespread dissatisfaction with the political establishment and the EU vote was the opportunity to make this point and of course “educated” Richmond et al voted to remain
As Margaret Thatcher alluded, with freedom and knowledge comes responsibility and its been evident since 2016 that the last thing the establishment want is the masses taking risks
Its for our safety after all
Information as propaganda is a main theme of The Sniff Test. The truth is hiding in plain sight, but we are impulsive, sensation seeking creatures who are easily distracted by the readily consumable or an authority figure. Outside of Richmond, of course.
The suppression of risk for the masses, in bailouts of failed companies and industries, in the rise of government-funded employment, in a cookie-cutter pensions industry dressed up as choice, and more, is itself a significant risk.
Just as when suppression of wildfires to protect holiday homes leaves the fuel in place for devastating blazes in future years, addressing the symptoms of risk does not remove it.
Taleb's argument is that there are risks we can never see, regardless of how reassuring our models are. But what he means by a black swan has become twisted to explain every time the models don't work, which is often because they ignored data that didn't fit the narrative.
As a philosopher once remarked, ‘we are a poorly evolved mammalian species. The adrenalin gland is too big and the pre frontal cortex too small ‘
I remember post the 2008 meltdown when VIX hit a record high of 82 before retreating to the low 60s which, with no hint of self awareness, some strategists actually determined was a buy signal...despite there being no historical equivalent pattern
Today VIX is at 13.5 despite the collective west submerging under unpayable debts, rising social strife, de dollarisation and the prospect of a NATO Russia conflict
My head says Gold. My heart says ‘I need a drink’