Commentary on matters financial has always fascinated me because it reveals a great deal about those offering it. During the pandemic, we had people who at one stage were complaining that their 10 years old science homework was too hard also giving commentary on matters ranging from the intricacies of immunology to public health.
Currently, commentary about the markets seems to be centred upon the decision of various reserve banks to begin a cycle of interest rate tightening. Much if not all of the commentary I see is somewhat hysterical in nature. The chart below is of the US 30 T Bond yield. As can be seen, we have had three decades of continuously falling interest rates and the local RBA cash rate follows a similar broad pattern of declining interest rates.
The current round of pants wetting among commentators is over the fact that for some inexplicable reason they could not fathom that this could not go on forever and that when interest rates began to rise there would be consequences. One of those consequences might be that the legs might be chopped out from under a multi decade bull market in various asset classes. In the US it has been equities and in Australia, it is real estate.
What is interesting is that people cannot generate a perception of a future reality that may be different from the current reality which demonstrates a lack of both creativity and expansive thinking. The ability to perform thought experiments where the world does not turn out as you envisage it is the hallmark of a sophisticated investor. What is even more interesting is the belief that it is the job of reserve banks to continually inflate asset bubbles to enable individuals to generate wealth. It is the job of reserve banks to oversee a functioning economy not markets – there is a difference between the two and if you think the economy is the market then you don’t really know all that much about trading. Finally, if you cannot trade a falling market then best you step out and find something else to do with your time.
