Attack the Week (ATW)
Sunday Thoughts
“Quantum mechanics is a whole new way of thinking – it says that the world is all by itself as a wave function of the universe, but you can never observe that. You can never observe a wave function directly. There is a complex relationship between what the world is and what you see when you look at it, and that relationship involves the idea that you can never predict precisely what you will see, but you can simply say the probability of what you will see.”
– Prof. Sean Carrol, Theoretical Physicist, California Institute of Technology Department of Physics.
The astonishing and unparalleled bounce in risk assets gave me time to reflect on long-lost worldly concepts. Why not start by understanding the universe? Quantum Physics might not seem the most obvious area of one’s spare time reading, but it opens profound questions, especially around the subject of reality. It would appear that, according to quantum theory, reality is merely a subjective notion and that, indeed, several, if not indefinite, realities exist. The notion that whenever a nucleus (central region of an atom) decays, or when you measure the span of a particle, the whole universe branches into multiple copies is just mind-boggling for simple finance professionals like us. Heisenberg, the physicist, not the TV character, interpreted the underlying mathematics to mean that reality doesn’t exist until it’s observed.
Reflecting on this truly astonishing theory, we can draw certain parallels to the current reality. Talking to my network finds a large variety of perceived realities dependent on each individual’s circumstance, location and economic situation.
Utilising a pinch of quantum physics’ uncertainty principle, which states that the position and the velocity of an object cannot both be measured exactly at the same time, we could conclude that purely observing economic outcomes following peak volatility events like the one observed a few weeks ago will not lead to optimal investment decisions as we wouldn’t be certain of the magnitude of the economic ramifications.
We simply don’t know what the future reality holds; this is probably truer now than ever as many of the world’s underlying economic & social fragilities are exposed. Comparing the social science of economics to the universality and precision of physics offers, despite glaring differences, some insight into dealing with uncertainty and probabilities around what constitutes reality. Reflexive dynamics stipulate how economic realities can be shaped by investors’ perceptions. We are currently experiencing a positive feedback process that has caused risk assets to bounce back from the fear of an immediate recession. This process can continue and can be self-reinforcing by nature. But we also know that it cannot go on forever. Eventually, investors’ views will be so removed from objective reality that a reassessment will inevitably occur.
Let’s now read my friend Macro D’s latest thoughts and scan what the week’s calendar has in store for us while considering 10 of the most thought-provoking charts.
Let’s go!