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“If you wish to make an apple pie from scratch, you must first invent the universe.” - Carl Sagan
Throughout the universe exist giant molecular clouds. Each being up to a million times more massive than the Sun, these bodies of gas and dust appear lifeless and cold - only several degrees above absolute zero. But most spectacularly, the seemingly random movements of their dust particles result in small concentrated pockets whose increasing density often leads to gravitational collapse, which also, subsequently, leads to warming. As this plays out, a body will grow smaller yet more massive, transform into a pre-stellar core, and ultimately become a star. Once in star state, hydrogen fusion ignites a mega-dense core, and immense gravity fights with outward-pushing energy, which lasts for millions or even billions of years.
Unfortunately, you can never watch this awesome process play out.
What is described above takes ~50,000 years. Not terribly long relative to the universe’s age of 13.7 billion years, but quite too much for even the most patient of humans. Additionally, the dust of giant molecular clouds absorbs all incoming light from surrounding stars, guaranteeing it never reaches Earth. Only with modern technology can we identify and map these bodies properly, and only sharply with the more recently launched James Webb Space Telescope, as pictured above. And, of course, there is the pesky consideration of distance. With the majority of cosmic events taking place light-years away, nearly everything we see is a remnant of events long past.
These physical phenomena are mimicked by finance.
There’s an endless array of tech, tools, and data sources at our disposal. Yet, despite different techniques, backgrounds, and starting points, attention periodically consolidates. A critical mass of belief and confidence leads to bubble-like formations of capital, which further warps the collective perspective. Without actual substance, it all eventually collapses back down to earth. Except for capital. More recently, anomalous monetary and fiscal policies destroyed any semblance of an anchor, and each dollar merely continues to float outward into an endless void.
“Monetary policies without limits transformed risk-free interest into interest-free risk.” - Diego Parrilla
I don’t have much of a stomach for macroeconomics and often jokingly tell those around me to slap me if I ever start talking as if I know the next moves of the central banks. Yet, I can’t help but wonder: how close did we really get to firmly breaking that lower bound into negative rates territory? When liabilities parody assets and vice versa, what even is a balance sheet? An episode of The Twilight Zone.
While everyone else continues to debate over where rates will peak, where inflation is headed, and otherwise, I am far more interested in that pesky law of Newton’s: For every action, there is an equal and opposite reaction. For every bubble, there is an equal and opposite anti-bubble.
The Anti-bubbles. The concept was coined by Diego Parrilla in his 2017 book of the same name. In it, he challenges the state of global markets and central bank policy while presenting several nuanced perspectives along with an argument for ‘Gold’s Perfect Storm.’ Setting gold aside, the fundamental idea of anti-bubbles is widely applicable. The attention, optimism, and capital required to inflate an asset must be sourced. At any given time, there must also be assets, industries, or companies, unduly depressed - the extent of which can vary just as much as the duration. The driver could be sudden and acute, leading to a low point in weeks or months. The largest anti-bubbles continue for years or decades, driven by structural pessimism.
Maximum dismay is often met with minimum price. When no one else wants to own something, you can generally purchase it for a ridiculous price far under intrinsic value. But the concern is that there is no clear way to measure maximum dismay precisely. Awkwardly, and by definition, maximum dismay shouldn’t be reached until your own expectations collapse. Even when you’re right, it can look like you’re heading into a black hole.
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This publication’s content is for entertainment and educational purposes only. I am not a licensed investment professional. Nothing produced under the Invariant brand should be thought of as investment advice. Do your own research. All content is subject to interpretation.