Chaos Theory-part zero
Time (how we see it) might be what is driving markets which is driving feelings which is driving markets
“Sooner or later the exact measurement of our time will resume- and we’ll be on the ship that’s bound for the bitterest of shores@. -Carlo Rovelli, Chapter 8, The Order of Time.
In March 2009 the S&P 500 traded 666. Gold, in the same year, traded at 813 dollars per ounce, the low for that year.
As I write this, 15 years or so later, The S&P 500 is trading at c. 5250 (7.88x) and Gold trades at just over 2300 dollars an ounce (2.84x).
I do not know if what we saw today, an admission by global markets that the 363 expected armed conflicts worldwide (and one on the way between Iran and Israel, as well as the rising tensions in The Bashi Channel, The East China Sea, the South China Sea, and The Taiwan Strait), the price of Brent Crude being over 90 dollars a barrel, and the 75 elections worldwide mean there is enough uncertainty that we must all brush up on Chaos Theory; but I am going to write a little about it anyway.
First, what Chaos Theory is NOT means a great deal. The effect of a butterfly flapping it’s wings and then effecting winds enough to create global havoc on the world commodities markets is not only too simplistic an idea for The Chaos Theory I refer to, but it is also too late. Both Cocoa and Copper are trading so erratically that the volume in those markets, largely driven by conflict (and technological demands created by those conflicts) means it is too late to blame the poor butterfly. No this is bigger than the Cicadas coming soon, too.
No, this is about The Universe as a whole.
Briefly, Hawking, as in the late Dr. Stephen, wrote a book we might have all heard of and possibly could have attempted to read by now: A Brief History of Time.
In it, while introducing us to the concept of Space-Time, explains the building blocks (His four fundamental forces) of the Space-Time (where everything happens and everything exists while it expands at 900 million miles per second per second and simultaneously contracts (because of entropy which creates the balance the universe requires) at a different rate creating the Chaos we experience while we try and take trains or understand what is going on for 363 armed conflicts to be happening while there are 75 elections too) we inhabit (as opposed to space and time separately).
These are-
Strong Nuclear Force (A Short Range Force that binds protons and neutrons together in the nuclei of atoms. It’s the strongest of the four fundamental forces yet it only acts over a distance of ten to fifteen meters (about 41 feet).
Weak Nuclear Force (An even shorter range force that occurs within the nuclei of atoms and is responsible for radioactive beta decay, a form of entropy, which transforms unstable particles into less massive particles).
By the way entropy destroys EVERYTHING (even Quantum Entanglement).
Electromagnetism (The main force in the interactions between atoms and molecules and all charged particles).
Gravity (While not exclusive to planets and suns, to Hawking Gravity is “God” because it is the invisible force that creates ALL things).
Now, let’s be clear. If you are reading this, you know how my mind works. And if you do not, then you are about to be introduced to my central philosophy: EVERYTHING IS CONNECTED. The selloff in Nvidia (NVDA closed below 888, a key support level) shares because of slowing demand for AI chips is because fewer people can and will be able to afford the technologies those chips will go in to, as evidenced (in one significant instance) by the downturn in Tesla forecast and sales.
So, as traders, money managers, investors, Diplomats, Heads of State (there was a NATO 75th birthday party today), and everyone else went about their business today (it hailed in San Francisco today), we might have all unified on the one idea that is driving 2024:
The four fundamental forces, acting all at once, have helped create so much uncertainty that questions about inflation (Gold has gone from 813 to 2309 dollars per ounce and Sriacha chilis have increased about 36% since 2017) and interest rate cuts (both Waller and Powell, Fed Governors are not yet convinced) means Carlo Rovelli is asking the right question:
How does one describe a world in which everything occurs but there is no time variable?
There is something called the term structure of volatility. Similar to interest rates being different based on different terms (time periods) for loans and bonds, this phenomenon refers to the idea that markets have different ranges of possibilities and probabilities based on ‘when’ a contract to buy or sell, or deliver or take delivery of something (anything that has a price). Well, it is also a measure of uncertainty. yes, you guessed it, it is completely out of whack. Relationships between various volatilities are inverted or flat while occurrences have higher probabilities as could be possible. How is it possible that the collapse of New York Commercial Bank has a probability HIGHER than 100 percent, yet the contracts related to it’s collapse are acting as though it is an anomaly in this universe because, yes, EVERYTHING has volatility.
Because (yes, I am making my point here) none of these things that are effecting us most can be measured. We are lost in the Chaos where we have no idea how many conflicts will be reconciled, or how many elections will effect geo-political shifts in Social structures or Authoritarian victories, or how high Brent Crude will go. Nothing is at the same mercies as ‘how long is the road’ or ‘how high is that tree’? We have no idea when the bank will be saved or will collapse so the market is acting as though NYCB could simultaneously cease to exist tomorrow or it’s collapse could go on forever suggesting it could exist below a valuation of zero. The first Zombie bank. Which, with the recent Mnuchin investment, it might be already.
For example, after 2020, we are uncertain as to not only the results on November 5th in the USA, but how long it will be until either candidate concedes. The largest economy in the world might be under threat because there is too much we do not know about what is planned to happen.
Never mind what might happen between now and then. That is unplanned. Unseen. Not at all considered.
In Chapter 8 of The Order of Time (this series will try and focus on one chapter at a time from Rovelli’s 2018 book and how it might help us with our current ‘now’ and even perhaps the coming ‘then’) we are introduced to the idea that within the confines of quantum gravity, the leading physicists who wrote the equation to define did so without a time variable.
Why? I paraphrase from pp 119 of my copy (The Penguin Random House paperback) ‘Because explaining time as a variable means explaining existence and explaining existence means explaining time…and explaining time means explaining the deep and hidden connection between time and existence…which is a task for the future’. The 1967 Wheeler (they said that) DeWitt theory does not describe how things evolve in time. The theory explains how one changes in respect to the others, (here it is), how things happen in the world in relation to each other.
‘…in relation to each other…’.
So, today MIGHT be that day when we ALL start to see that the uncertainty and Chaos is caused by seeing rising Oil prices as NOT separated from increased instances of Fentanyl overdoses. That what is happening in Russia, Ukraine, Poland and Belarus IS CONNECTED to what is happening on the US Presidential campaign trail. That AI seeming as though it is TOO BIG like Godzilla and causing increased anxiety because we have no idea what ‘it’ is is somehow connected to the increased uncertainty in whether or not people are paying for home insurance (up 20% this year yet NOT considered important to inflation metrics) because weather forecasts on The Weather Channel are being created by (their words on February 5th 2024): “…A proprietary mix of AI and human resources” while simultaneously forecasting that 2024 is the worst weather year (measured in the number of storms and named storm days) above the entire period from 1990 to 2020.
Barron’s, today, in the wake of this sudden global “Aha’ moment when the selling began all at once, explained in an uncharacteristically short post market email, perhaps (hopefully) with a tongue firmly in it’s cheek, that investors had a lot of geopolitical and economic data to process today.
Today? Did we have less information yesterday? Yes, And we will have more tomorrow because the data is like time, a river.
What is probably driving the uncertainty is the uncertainty regarding the amount of time it takes to process or the amount of time for there to be resolution?
From the same Rovelli:
pp 141. Chapter 9 (yes, I skipped ahead and did not start at the beginning):
“This re-emergence of time seemed to me like an intrusion, a source of mental confusion, anguish, fear, and alienation”.
Today, Barron’s wrote.