Manipulating, Steroid Using, Heroin Addict
- Posted by DynamicHedge
- on September 19th, 2012
The stage is set and curtain drawn. A hidden force rallies the emotion and contorts the body of a wooden caricature before you. The real star of the show is perched out of view in the rafters high above the stage. The audience is in awe of the dangling display even thought the wires are clearly visible. The master puppeteer creates impossible scenarios with the mere pinch of the twine and flick of wrist. Somehow the whole show seems both impressive and preposterous at the same time. Not only is everything is orchestrated by one man, but his success rests entirely on the tension of the flimsiest of wire. If the puppet master pulls even a little too hard the entire illusion will be ruined and our once limber caricature will lie in a heap.
Imagine in your mind someone you once knew. A close friend or relative that turned to substance abuse to shield themselves from events in their life that they either could not or refused to confront. Maybe they drink. Or worse, they turned to something a lot more damaging: heroin. Friends and family begged them early on to get help while they still could, but the user ignored cries for reason and prudence by continuing down the destructive path. They lost their humanity and the things that seemed important pale in comparison with the compulsion for the next fix. Once the drug wears off they’re overcome with feelings of needing to use again, and again. They’ve lost control over their life because, in your mind, they sought the easy way out. Instead of facing the problem head on when it was managable, they created an even bigger monster. At some point, getting clean and sober will require years of pain, suffering, and personal humiliation as they reconcile their terrible choices.
Now think about something that you are already good at: sports, music, or even business. Now imagine doing those same activities on steroids or that pill that Bradley Cooper takes in the movie Limitless. Your can train longer, your endurance is better, your confidence improves and you rise above previously insurmountable performance plateaus. You have an invisible advantage and it propels you to the next level. Your competitors suspect something is different because your performance is unexplainable, but you win regardless. You carry on this behavior and enjoy the trappings of its success for as long as your body and morality will support it. Deep down you know that this will all come undone. Even if you manage to conceal it forever, you will have to live with the knowledge that you life achievements have been a fraud.
We hear these three narratives with regard to central bank actions all the time. Phrases like: “The markets are rigged,” and “The party is great but the hangover from these measures will be brutal” or “The Fed just juiced up the markets with another round of QE,” echo through the news cycle on a daily basis.
The imagery and narrative we adopt directly affects the decisions we make.
Those latching on to the Bernanke-as-puppet-master imagery are likely to conclude that like the actions taken by the Fed are as flimsy as the strings controlling the puppet. These traders and investors might aggressively short the market, feeling that the next crash is just a scissor-snip away.
Austrian economics disciples likely hold images of an addict in the throws of painful withdrawal symptoms at the forefront of their mind. Those wary of the hangover or withdrawal symptoms might take measures to prepare for the inevitable tough times ahead. This means conserving cash and generally being risk averse.
And finally, probably the least used image: the performance enhancing drug user. The consequences of juicing are no less real, but they lack the visual appeal of the other two narratives. The only way to uncover this cheat is to get inside the system and make their behavior impossible through enhanced tests and screening procedures. Those who subscribe to the juicing analogy know that you should never bet against a winner, especially one with a pharmacological advantage. While it’s inevitable that the wheels will fall off eventually, chances are, not today.
For me, the imagery of the performance-enhancing drug user fits best. Especially in the context of the zero-sum central bank policy and the currency wars launched to defend comparative advantage. This means that while I know things might come undone at some point, I can’t bet against the competitor I know will likely win the next race. I also know that changing the system that is so profitable for so many is unlikely. It makes me think of a certain cyclist who won for DECADES before finally being branded a cheater. Why would I bet against him in race 3 any more than I would have bet against him in race 2?
Which narrative do you subscribe to? How has it affected your decisions?
Disclaimer: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please click here for a full disclaimer.
DynamicHedge is an equities, futures and derivatives trader based on the West Coast. He runs a long/short opportunistic relative-value strategy within a proprietary trading group. More
- Market Cap Arbitrage: SPY vs IWM
- How to Deal with High Frequency Nowcast Economic Data
- An Almost Impossible VXX Rally
- 4 Misconceptions about Dow Theory
- Gap Personality: When to Chase and When to Hold Off
- Sophisticated versus Effective
- Three Month Consolidation Break
- Efficient Markets Believe In Trends
- Marketview: Lost Steam
- Undiscountable Trends: Live Event Interaction