Attack the Week (ATW)
March 10, 2024
Sunday Thoughts
I was recently reading Andre Agassi’s autobiography “Open”. I love Agassi’s admission and insight into the highs and extreme lows of his career and personal life. Among the most startling disclosures was his admission of having used crystal meth in 1997, a period during which his career and personal life were both experiencing turmoil. The most amazing story was him failing a drug test due to his methamphetamine use. Facing the prospect of sanctions, he wrote a letter to the ATP, in which he falsely claimed that he had inadvertently ingested the substance after sipping a spiked soda belonging to an assistant named "Slim."
Remarkably, the ATP accepted Agassi's explanation. He escaped a potential ban from professional tennis. Some were speculating that this was due to Agassi’s status as a top player and that him being banned would have brought more scrutiny and negativity to the sport as a whole. Similarly, Manchester City’s ongoing investigation of over a hundred alleged financial irregularities underscores the complex calculus involved. Punishing a club of its stature — considering its financial impact, fan base, and influence in the sport—poses significant risks not only to the English league but to the global football ecosystem.
Once you become too big for the system to be able to absorb your fragility, weird game-theoretical things happen. This too-big-to-fail concept is predicated on the notion that certain institutions or individuals hold such significance within their respective domains that their downfall would precipitate widespread collateral damage, making any potential failure not just a personal or organizational catastrophe but a systemic crisis.
The current set-up should remind us of what I described in “Burning Wealth”. Market capitalization to economic output (GDP) has increased to levels which should, in normal conditions, allow for mean-reversion. While we have seen some adjustments over the past few years, we are off to reaching new highs again. This, as I have argued, is putting market stability as a higher policy priority than inflation purely because of its vast sensitivity and impact on underlying economic conditions. This makes the system more fragile.
Burning Wealth
The markets are a reality, and so is the economy. The feedback loops are impossible to read and disentangle. How can you assert what is influencing what at any given time? History, of course, can teach us some lessons and guide us. While it would be logical to assume that economic outcomes lead financial markets, I would argue the opposite has been true…
Let’s now look into what the week brings. This is a reminder for myself that US daylight savings begins today, with clocks springing forward one hour and temporarily changing the time difference between the US and London to 4 hours. Important when you are data watching!
The key focus will be on US CPI, with consensus expecting softer core inflation.
Let’s uncover more details and have a look at what charts we should put our attention to.
A reminder that you can now use my models in TradingView scripts, which I made available for subscribers to use on their charts for a fee. If you are interested, ping me an email with your TV username.