What's wrong with this picture?

1 min
March 18, 2024
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The above is a snapshot of the weather forecast for Wednesday in Chamonix, here in the French Alps. Obviously high up it is below zero and we still have snow, lots of it in fact such that locals say it is the best snow high up for years, but none down in the town where it is plus 4 degrees. This is nothing unusual for March - not that you would know that from the press of course, where it is “Evidence of a Climate Crisis’ - but common sense tells us that this is what happens in the mountains.

Common sense is not so common


However, what is so evidently wrong with this picture is that, while it is below zero high up, the picture shows the variation between up the mountain and in town today is around 6 degrees (see small bar at the top). So what actually is the temperature in Chamonix? Common sense says that it depends, quite literally, on where you are standing. What caught the eye today though was that, by Wednesday, that spread is predicted to be enormous (over 20 degrees in fact) and even at the same altitude the difference between morning, noon and night on a single day in a single town is a forecast 19 degrees! For context that is 200x the variance that we claim to be able to measure within on a global scale. Moreover, because the morning temperature is predicted to be higher on Thursday, the average then might be even higher than Wednesday, even if the midday temperature is lower. In essence, the signal to noise ratio is so massively distorted that, as the Orwell quote goes “There are some ideas so absurd that only an intellectual could believe them.”

The idea of an average global temperature is as meaningful as an average global phone number


And yet we have assembled an entire industry and are demanding nothing short of civilisational change on the conceit that we can measure the average temperature of the entire planet to within 0.1 degrees, not only now but thousands of years into the past. And on top of that, we claim to be able to predict it a hundred years hence. It would be funny if it wasn’t so dangerous. Rubbish in equals Rubbish out and the faster our computers whir, the quicker they leap to the wrong conclusions.

The real danger though is not the dialogue of the deaf with those that will not hear any challenge to their orthodoxy, but that ‘global government’ has decreed a set of policies that are based on predictions that themselves assume a level of precision in measurement that defies common sense. But then, as Voltaire pointed out, common sense seems lacking in supply, especially in these circles. The upsurge in populist protests against these policies is hopefully forcing common sense into the policy mix…

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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/

Gold and Goldilocks

Bond markets are changing their views on Fed policy based on the high frequency data, seemingly unaware that the major variable the Fed is watching is the bond markets themselves. After the funding panic of last September and the regional bank wobble last March, the twin architects of US monetary policy (the Fed is now joined by the Treasury) are focussing on Bond Market stability as their primary aim. Politicians meanwhile, having seen how the bond markets ended the administration of UK Premier Liz Truss in September 2022 are keenly aware that it is not just "the Economy stupid", but the Economy and the markets that they need to manage the narrative for both voters and markets. They all need a form of Goldilocks - either good or bad, but not so good or so bad as to trigger either the markets to sell off or the authorities to react. Investors, meanwhile, conscious of the precarious balancing act Goldilocks requires, are increasingly looking at Gold.

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