1. What can we say about Obamacare, Obamawars (6 so far), Obamapromise (http://www.whitehouse.gov/fact-sheet-victory-bipartisan-compromise-economy-american-people) and how the global markets reacted yesterday in the face of short-term rate acceleration in Spain and Italy?
2. Markets bloomed in red and finally, commentators pronounced the obvious death of sovereign bond credibility. See: http://blogs.reuters.com/christopher-whalen/2011/08/01/basel-iii-in-the-age-of-sovereign-default/, spotted by one of my esteemed colleagues.
3. Now that the US has RAISED its ability to destroy its credibility by another 2.5 trillion dollars over the next two years, this should also call the end to all those asset pricing models that use the term "risk free rate of return." All MODERN TEXTBOOKS on Finance and Investment should just be pulped or used as fire wood. And curricula that promote such theories are just replicating nonsense. This includes the grand CFA curriculum where 60,000+ people a year pay to be tested on untruths.
4. Now that we know (yet again) that the basic models of finance are wrong, do we have any viable replacements?
5. This is like asking the question of whether there is another way of practicing religion? Evans-Pritchard in his work on WITCHCRAFT, ORACLES AND MAGIC AMONG THE AZANDE (abridged version 1976) and Marcel Mauss' THE GIFT are the two books I require my students to read if they wish to become traders. Basically, I warn the youngsters, "Don't trade unless and until you know thoroughly the way your chosen markets organises each day, and in fact, take time to live inside your markets, organising your daily rites, rituals, signs and symbols according to the very tribe you wish to enter." I know the PhD quant heads will spit an expletive deletive here, but then they probably never studied anthropology and learned certain values are reinforced by nonverbal communications and that signals are not always explicit. The closest study would be political economy but at the trading level, one must submit to the rituals or one is outside the flow of traffic which makes up the markets. Evans-Pritchard conducted an amazing personal-social experiment by organising his daily activities by throwing oracles exactly like his fellow Azandes. Guess what he found out? He found that his life was no more or less organised than if he were back in England. In other words, the rationality was located in the meaning formed by the daily routines no matter how weird in belief.
6. Now apply E-P's insight to personal behaviours in the markets. We can begin to CODE behaviours as forms or patterns which can be captured explicitly as programmes. It is at this level that Category Theory makes itself most useful. By translating behaviours into morphisms and categories of categories as groups of people, and even further up the scale to whole societies, it becomes possible to "see" structures where borrowing of one or two forms from one professional-group can be used in another. The comparative now becomes a matter of trans-implantation.
7. The oracles of the financial world without risk free rates of return mean a different set of rituals--but probably not too much different from the way we organise our day--no matter how weirdly.
No comments:
Post a Comment