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For All the Bleeping Uncertainty, Why is the Stock Market at All Time High?

Every day day of the year another economist yaps about uncertainty.

There's uncertainty over the US election, over Brexit, over interest rates, over the strength of the US economy, and over global trade.

Will the Bank of China devalue the yuan? Will the Bank of Japan aggressively target deflation? What will ECB president Mario Draghi do when he fails to hit his 2% inflation target?

Will Austria vote for an anti-immigration president? Will Italy's prime minister Matteo Renzi get the constitutional reforms for Italy that he seeks? If not, will he resign as promised? What about the rise of euroskeptics in France and Italy?

A Financial Times survey says White House Battle Set to Chill US Economy.

"There is more uncertainty around US economic policy now than there has been for quite a while," said Lewis Alexander, economist with Nomura. "You look at what Donald Trump proposes in particular and it raises all sorts of questions, the threats around trade, the threat of the costs to move jobs overseas. It raises the degree of uncertainty around investment."


Market Hates Uncertainty

I did a quick search for the phrase "the market hates uncertainty". The results are amusing.


Protect Against Uncertainty

Steve Massocca on CNBC


S&P 500 vs. Rising Uncertainty


Uncertainty Ass Backwards?

Looking at the above chart, one might wonder if the phrase "the market hates uncertainty" is ass backwards.

It's not quite that simple either.

  • Perhaps the market is reacting to the near certainty that central banks want to keep the party going.

  • Perhaps people were so certain that Brexit would kill the market that it rallied after the initial shock subsided.

  • Perhaps there are still more greater fools willing to be sucked into the notion that central banks have everything under control.

  • Perhaps Trump will not be as bad for the economy as everyone expects.

There are a huge number of possibilities in play. All of them are uncertain.


I Am Certain of Three Things

  1. Uncertainty will continue.

  2. The more certain economists and market participants are about things, the more likely they are to be wrong.

  3. I don't know, and no one else does either.

 

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