0/Been thinking a lot about how to put the current market environment (last 2-3 years) into words and I have been at a loss. I was on a flight yesterday thinking about this and I remembered the expression "Minsky Moment" - Stability breeds instability.
1/For those who don't know what that is, a Minsky Moment is a sudden major collapse of asset values which is part of the credit cycle or business cycle. Such moments occur because long periods of prosperity and increasing value of investments lead to increasing speculation.
2/Here is the Wiki: en.wikipedia.org/wiki/Minsky_mo…
3/A Minsky Moment is occurs when things are "stable" in markets. Or appears to be. Stability breeds instability because while there is the appearance stability on the surface, instability is growing as leverage and malinvestment grow.
4/Eventually the "Moment" comes when asset markets/participants "wake up" and become aware of this and all run for the doors causing drastic prices moments.
5/So whats my point? The point here is that to me I believe we have been living in an upside-down world where the exact opposite has occurred. We have been living in a world where "Instability has bred stability."
6/The more fugly the headlines, the more globalist/nationalist tension, the more division of people, the more divisiveness amongst nations, the more "fake news"--from both sides, the more global QE/QT/market "control", the more metrics being used to push narratives....
7/The list goes on and on and its global in nature.
8/We had the Greek crisis in 2010. Then we had the US lose its AAA status in 2011, we had the PIIGS, Cyprus banks, Ukraine/Russia. We also had the Fiscal Cliff, Sequestration, Taper Tantrum, end of QE1, QE2, QE3, oil bubble bursting, China RMB reval, Brexit, Trump, Trade war.
9/Thats like 25+ "crisis" in ~8 years. Market is near all-time highs.
10/All of this instability has lead to relative stability.
(I realize its ironic as I type this the market is having one of the worst days in a long time. Is today actual signal or just noise? Does it matter?)
(I realize its ironic as I type this the market is having one of the worst days in a long time. Is today actual signal or just noise? Does it matter?)
11/ So what is this called? I use to think it was just the "wall of worry" but I think its something more. Its something more palpable -- almost twilight zone-ish in nature.
12/It feels like we have been living in a series of ANTI-Minsky Moments for a long time. The more unstable the world gets the more stable markets have become.
13/ This rant honestly leads to more questions than answers. At the end of the day it doesn't necessarily matter what its called. Thats just semantics.
Will this dynamic change? Is this structural or cyclical? How does one "win" in this environment? What causes it to end?
Will this dynamic change? Is this structural or cyclical? How does one "win" in this environment? What causes it to end?
14/Is living in continuously Anti-Minsky Moment environment the new normal? Can this be boiled down to any 1 or 2 driving factors? How does this affect how people live their lives? What are the second and third order effects of those life-style changes? Etc. etc, etc...
15/Instability breeding stability is arguably LESS dangerous than the opposite of stability breeding instability. There are more known unknowns and markets price them fast. "It's discounted in" so they say. But is it?
16/I believe there are a lot of unknown unknowns lurking and the Instability in the world is de-sensitizing many market participants to further instability making things appear more stable on the surface than they actually are.
17/Excited to see how this one plays out.
