The exponential circularity

The circular effect is roughly as follows: If value is essentially a forecast, then the economy is the aggregation of all forecasts, and the markets – where assorted values are determined in anticipation – are a clearing exercise shaped by a view of how these forecasts are prone to change. The markets set a forecast to the forecast, which can reflexively influence the source.

The investment decision – a strategic course of action by a business, group, or individual – takes its cue from the economy and markets, which take theirs from the investment that’s decided.

Over the course of time, the crisscross of influences and effects settles into a semblance of order, where all involved may start to get accustomed to a general direction until the order of the thing gets shaken and a period of volatility again takes root. The severity of this depends on the depth and reach of the shaking, and thus, too, the time to order on the other side, and its nature.

The present time and its triggering event are of a depth and reach that is (arguably) unprecedented, which makes the described flow particularly tricky, with little to look back to as a guide or by analogy to find the equilibrium.

At the basic fundamental level this presents a problem…

Howard Marks – Uncertainty

… ideally resolved with patience and close observation…

Paul Tudor Jones – May 2020 Market Outlook

… to the extent permissible by liquidity and funding…

WSJ – Banks Are Only as Sound as Their Models

… which circularly reflects back on value and is determined by it.