May 5, 2016
This is the latest Epsilon Theory newsletter by my friend Ben Hunt. It is a definite must-read. Now, I have to warn you that the first four pages or so are mathematically complex, but just kind of struggle through it and get the gist, which is that, put most simply, correlation is not causation. Ben is in love with mathematical models and their history, so this is an opportunity for some of us less mathematically gifted types to learn.
But then he gets to the heart of the matter. He makes the key point out that monetary policy around the world has become a driver of markets – and in some markets more so than market fundamentals.
This is reinforcement for my contention that even though monetary policy in the US and the rest of the developed world is demonstrably taking us down the wrong path, it is not clear that even if we could get everybody at Federal Reserve to admit their error – which I don't for one minute think that they can – they might not be able to back out without causing massive disruptions. Which means they have to give us more of the same ineffective medicine, which is going to manipulate and distort markets even more. Oh dear gods.
Read this twice. Meditate on it. I normally don't get this emphatic, but Ben is pointing us in the direction of something we need to pay attention to.