The siren quality of a playbook
"Far out in the unchartered backwaters...." and so the story goes.
'Market sentiments' drive the undulations of the equity and bond markets. These sentiments are the product of a combination of market fundamentals but increasingly narratives - creating playbooks.
The use of 'fundamentals' implies an aspect of analytical rigour and sense of security; derived from some form of scientific certainty and inevitability. Fundamentals are directed at the head. Yet the standards of analysis may be under threat from a mixture of: overabundance of data; the binary nature of algorithmic trading; inexperience; as well as the instantaneous open forum of social media, that provides a soapbox to all and sundry. It begs a question: Is your truth more valid than mine?
More appealing though are the narratives proffered by pundits and experts. They are a welcome chimera; providing much needed explanations in a world detached from traditional orthodoxies. Narratives provide a basis for reassurance; appealing to the heart. Narratives offer the prospect of understanding the true motivations behind the forces at work and who is shaping them. The power of a narrative is that it affects how people see the world and their attitudes and behaviours. Worryingly these narratives are not necessarily based on an objective fact nor metric. Narratives at one extreme can be a form of structured gossip; while at the other end a logical explanation of observed facts and forces. Is the glass half full or empty? Is there a glass; does it need to be filled?
These narratives feed today's playbooks for the future. They needed to be considered with care.
The emerging post-Covid19 landscape seems to have exacerbated a divide that has been widening for the last 20 years: prosaically described as an increasing dislocation between the activities of Wall-Main-Home Streets as well as Government Hall. Monetary and Fiscal policies are at best palliatives, not the cure; their presence is not the effect. (Un)employment, consumer indebtedness and its effects on demand are. Populist and reactionary policies may well exacerbate rather than excoriate the underlying cause of the longstanding economic malaise.
As with a skipper on a vessel; weather, currents, charts are to be considered; experience and common sense applied; as one steers a course - hoping to travel true. Likewise, the investor needs to take stock, plan and act accordingly to protect the capital and returns of her/his portfolio.