Logic’s Coming Home

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July 6, 2021
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The last year has seen an extra-ordinary suspension of logic in a lot of policy announcements, with Governments seemingly requiring positive proof from those opposing their Covid restrictions that their (often random) policies don’t work, rather than the Government having to prove that they do. Post July 4th the majority of US States appear to have moved back to a state of near normality, even as the UK government ties itself up in knots as to why 45,000 football fans are not a risk but a wedding of more than 30 people is. In an encouraging sign however, the political winds seem to be shifting in the UK and indeed Europe. After a year in the wilderness, it seems that finally ‘Logic is coming home”.

Almost exactly 11 months ago we discussed the psychological experiment of the Five monkeys and in particular how quickly people assumed learned behavior and forgot the reason why that behaviour existed in the first place.

Covid and the 5 Monkeys Experiment

Sadly, indeed tragically, this appears to have got worse rather than better since then. The original idea of preventing health services from being overwhelmed led to an unprecedented policy of locking down everybody, not just the vulnerable. This, however, gave way relatively quickly to a mass vaccination programme that by contrast targeted the vulnerable as a priority, although the majority remain locked down. Now, with anybody who is deemed vulnerable (to death or severe illness) vaccinated unless they choose not to be, there appears to be a push to get everybody vaccinated. However, rather like the five monkeys, it seems nobody can remember why we locked people down in the first place – to protect the vulnerable and to prevent the Health Services being overwhelmed – two aims that are basically already achieved. It is this mission creep to a quixotic (and ruinous) policy of zero Covid that continues to throw uncertainty at financial markets.

As someone pointed out, with England’s Euro results to date being 0-0. 1-0. 2-0 and 4-0, were Imperial College to be forecasting the next result they would presumably be going for 8-0

The parallels with Climate Alarmism remain powerful. The ‘science’ for both is based largely around computer modelling* with worst-case scenarios ‘re-purposed’ as central cases from which even more extreme projections are then made and which are then seized upon by activists to leverage politicians into policy actions that are disproportionate to the actual threat. Moreover the ‘opportunity cost’ of the policies is rarely considered and indeed is glossed over by powerful vested interests. The rhetoric of both camps is riddled with logical fallacies, such that it is also worth revisiting the note we wrote almost exactly a year ago on this very topic.

Logical Fallacies, Behavioural Finance and Covid-19

r you could revisit our Logical Fallacy Bingo card and see how you do – click link for original article with descriptions of each logical fallacy.

A Logical Fallacy Bingo Card

Logical Fallacy Bingo

The bottom line is that one year on, the political classes are reluctant to give up their ’emergency powers’ over Covid, while lobbyists are hoping to exploit this to get similar, non-democratic, powers for their own vested interests. This seems to be the case in Europe and the UK in particular, the US having largely abandoned most of the Covid restrictions – probably because with Trump gone they feel they can not be blamed for earlier policy mistakes.

However, in a positive turn of events, the UK seems to have broken the spell that had suspended logic for the last year or more. Recent statements highlighting low hospitalisation and death rates instead of high positive test rates are equivalent to pointing out to the monkeys that there is nobody there with a hose any more. The shift in personnel (the expulsion of the Zero Covid Health Secretary Matt Hancock to be replaced by seemingly more pragmatic ex Chancellor Sajid Javid) has marked a change in the political winds and a return to a more pragmatic and logic based approach. Sadly, it is probably too much to expect the same degree of logic to apply to the ‘Green’ driven Build back better agenda, although as previously noted, the logic of small nuclear power has certainly been accepted in the US and of course China. Whether the UK and Europe wake up to the competitive losses associated with high energy costs remains to be seen.

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Market Thinking May 2024

After a powerful run from q4 2023, equities paused in April, with many of the momentum stocks simply running out of, well, momentum and leading many to revisit the old adage of 'Sell in May'. Meanwhile, sentiment in the bond markets soured further as the prospect of rate cuts receded - although we remain of the view that the main purpose of rate cuts now is to ensure the stability of bond markets themselves. The best performance once again came from China and Hong Kong as these markets start a (long delayed) catch up as distressed sellers are cleared from the markets. Markets are generally trying to establish some trading ranges for the summer months and while foreign policy is increasingly bellicose as led by politicians facing re-election as well as the defence and energy sector lobbyists, western trade lobbyists are also hard at work, erecting tariff barriers and trying to co-opt third parties to do the same. While this is not good for their own consumers, it is also fighting the reality of high quality, much cheaper, products coming from Asian competitors, most of whom are not also facing high energy costs. Nor is a strong dollar helping. As such, many of the big global companies are facing serious competition in third party markets and investors, also looking to diversify portfolios, are starting to look at their overseas competitors.

Market Thinking April 2024

The rally in asset markets in Q4 has evolved into a new bull market for equities, but not for bonds, which remain in a bear phase, facing problems with both demand and supply. As such the greatest short term uncertainty and medium term risk for asset prices remains another mishap in the fixed income markets, similar to the funding crisis of last September or the distressed selling feedback loop of SVB last March. US monetary authorities are monitoring this closely. Meanwhile, politics is likely to cloud the narrative over the next few quarters with the prospect of some changes to both energy policy and foreign policy having knock on implications for markets/

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