While the Central Banks crushed Volatility, forcing original thinking into Submission, the Bots got smarter and the Game of earnings got more predictable...
Passive money helped grease the wheels, so Company Management became quite adept at the Game:
2) Make this “Guidance” low enough to be “Beatable”.
4) Be sure to “Buyback” enough stock to increase your EPS enough to “Beat” the “growth” forecast.
5) “Announce the Earnings Beat!” Each quarter.
Much more pronounced is the Intra-day, Intra-week, daily movements of securities.
Why would you need a Human mind for this type of environment?
Unsurprisingly “Quants” thrived.
If you crush Volatility and dispersion and force a certain limited set of parameters onto a market by eliminating the Volatility of many Factors, all you have to do is control those Factors and you can come up with solutions for the remaining variables.
Central Banks bounded The Game of Markets in such a way that The Myth of Passive Magic had enough power to ensure there would be enough Capital simply playing along with The Earnings Game...
This became an important element because it ensured that The Game could go on.
As long as the Words in the Release didn’t change: Keep Playing!
During 2017, the S&P 500 had a Sharpe Ratio of 3.7 and the VIX remained under 20 all year long. There were a record number of days below 1% movement in the S&P. The Videogame was easy! The Bots thrived!
Don’t do anything because markets are so Easy you don’t need to do anything!
Investing is Easy and should be Free!
The Myth of the Infallible Central Banks assumes they can make that happen.
In Fake Years that Should Never Exist like 2017, the Videogamization works great! Passive Magic thrives. Bots thrive. Idiot Strategies work!
This was a Natural Reflection of the Markets. A microcosm...
The Myth of Passive Magic is a Lie.
The Myth of the Infallible Central Banks is a Lie.
2017 was a blow off top of absurd denial about the Fact that Risk Exists.
2018 was the beginning of a return of Normalcy and Risk to Markets.
The Videogame got harder.
Markets are in Reality quite complex, Risky and hard to predict.
The Videogame will Break.
But of course we knew that would happen...
Anything is possible in Global Markets and economies.
Unfortunately, it has Infected our Markets rather deeply so the Humans now watch the Bots fight.
The great thing about Reason being revealed is that Humans can finally participate in Markets again.
Like if the Central Banks can’t just control everything...
Like what if Risk Exists?
But way the Future will be much more about Cyborgs than Bots.
It will be more about Risk and Reality than simple Myths.
Markets will be Hard again.
And That is a beautiful thing.