I have in mind to write a series of posts along the lines of a recent comment from Greg Swann on this post and in reference to others surrounding it. In the immediate, what calls my attention is Billy’s comment.

No bullshit: you’ve got your head completely up your ass about China.

There’s a tie-in to it all in my mind (my posts, Greg’s & Billy’s comments) which I generally think is our belief that we can somehow predict the future. Not in any precise way, but we do seem to think and we strive to calculate what’s ahead. In the markets (in which I’m involved day in, day out) it’s manifest in fundamental analysis of companies, industries, and economies (profits, management, contracts, deals, commodity prices, competition, analyst ratings, markets…the list goes way on) and in technical analysis of price and volume action, chart patterns, relationships, ratios, oscillators, moving averages, divergences, stochastics, probabilities, deviations, statistical regression analysis and so on.

At once I am prepared to say it’s all bullshit, and at the same time
realize that it’s the only data we have. As poor as it is, we’ve got to
have some idea of where to place our bets for the future and we’ve
little to nothing else to go on.

It’s pertinent to speak to the difference between fundamental
analysis and technical analysis. Technicians don’t dismiss fundamental
analysis. They simply claim that it’s already in the chart. All the
relevant information has been accounted for and people and institutions
have bought and sold upon their individual judgment so it’s all baked
in the cake and you can just look at the chart. But the chart only
tells you what has happened. There are mathematical probabilities associated with where it likely (but not necessarily) can go, but that’s just a range of (up or down) possibilities.

(In political philosophy that’s focussed on enlightenment, reason,
free minds and markets, and liberty the philosophers are the
fundamental analysts and the economists are the technical analysts.
Think about the foregoing in light of that proposed relationship.)

And yet, in spite of it all, there are millions upon millions of
traders, speculators and investors who think they have some special
insight into the future. I don’t, with one single exception which I’ll
get to. Moreover, I understand how easy and natural it is to explain
what has happened in the past in terms that are convenient to our
belief about the future. Did you get that? Something bad happened in
the past and we’ll identify a set of ideas and circumstances that
prevailed at the time, note that some or all of those ideas and
circumstances exist now and then predict doom.

It’s not just in financial markets; but because I literally see this
done dozens of times a day in trading, I really begin to paint a
picture of how this sort of behavior is operative all over the place at
all times. I think that far, far too much stock is given to the notion
that not accounting for history dooms us to repeat it. We should
certainly be mindful of history and learn lessons that need learning,
but it’s not deterministic and it is, in fact, unlikely that history
will repeat itself — though there’ll never be an end to those claiming
that "this" is just like "then," when in fact it’s only a small set of
things that are similar, probably most are not at all, and the
underlying causes (facts, circumstances, context) were a wholly
different set of complexities.

I’ve decided I have lots more to say, so I’m going to break this up. Part II is posted.