The Markets and Obi Wan

The markets are tumbling again this week, apparently on Tuesday’s testimony of Drs. Fauci and Redfield before the Senate Health Committee. They warned that the coronavirus is far from contained and that a too-rapid easing of social distancing and stay-at-home restrictions will likely trigger a second wave that could be even worse than the first.

The New York Times reports:

The comments appeared to rattle the markets, driving the S&P 500 down as investors weighed the potential of a second wave of infections against Mr. Trump’s promises that the economy would bounce back once stay-at-home restrictions were lifted.

Seriously? The financial markets are skittish because someone contradicted Trump’s assurances? Trump is a raging narcissist, a pathetic little man whose bombast and lies do not (as he intends) glorify him but starkly highlight the absence of his soul, the smallness of his mind, and the pettiness of his character. Since assuming office he has lied over 18,000 times. One might reasonably begin the count with his inaugural speech, where his language, tone, and “American carnage” imagery were at odds with every measure of objective reality.

The talking heads on television and cable news outlets, especially those which aspire to be information platforms for business, always come back to one word: predictability. “Markets like stability and predictability,” they say. Meaning, the financial markets don’t much care who is in office as long as policy isn’t changed on a whim and without warning. Meaning, the financial markets might be spooked for a moment when a Democrat is elected — on the presumed fear of regulation — but these brief periods of volatility soon smooth out and the markets go on as before. Because they like predictability.

The truth is, the financial sector really shouldn’t like deregulation: it’s the anything-goes, anything-can-happen, nobody-is-accountable temperament of the Wild West that roils markets; its unpredictable nature is by definition unknowable and its consequences unforeseeable, opaque to even the best crystal ball. If we learned anything from the 2008 financial sector meltdown, it was (or should have been) that deregulation begets instability, and that even the best computer models are as clear as mud when it comes to really predicting the future. It’s looking more and more like we didn’t learn that lesson, or any other; just as the 2008 crisis echoed the 1986-1995 S&L debacle. The echoes of history reach all the way back, and after each recovery we take two steps forward and then, when things stabilize, at least one deregulatory step backwards.

Trump wallows in unpredictability; he boasts about it; he sows chaos wherever he goes. It is his briar patch. Burnout is a well-known consequence of working in the White House pressure cooker but Trump’s administration churns personnel at an alarming rate. (Insert joke here about the ten-day period of employment known as a Scaramucci. Oh, you were there a month? Three whole Scaramuccis?)

Financial markets aren’t the only institutions that appreciate stability. Diplomacy might be an art, but it requires some level of predictable behavior and rationality: it’s difficult to negotiate if you have absolutely no idea how the person across the table will respond. (Trump believes this is his strength, that being unpredictable is the art of the deal. To the rest of us it’s a sign of serious mental illness and instability.)

The markets like stability; they want order; they crave predictability. Trump is a known, compulsive, congenital liar whose only objective is to stroke his self-image. To that end he will say anything. With his reelection prospects (already slim, as I discuss here) in tatters he makes assurances nobody should believe about the pandemic being past while Dr. Fauci, the Director of the National Institute of Allergy and Infectious Diseases, tells the Senate and the nation that the virus will be with us for some time yet. Indeed he has been telling us all along that a resurgence in the fall is likely.

All of which brings me, finally, to Obi Wan Kenobi, whose Jedi wisdom might be the most appropriate answer to anyone taking action of any kind on the strength of Trump’s promises and reassurances. Who is more foolish, the fool or the fool who follows him? And if you’re invested in those markets: caveat emptor.

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