The Fed is Zeus and the algos are the underworld - Greek mythology is a lot like today's wild markets, Macquarie says
- Macquarie analysts think investors ought to consider creatures of Greek mythology to understand the ins and outs of today's financial markets.
- By Macquarie's assessment, the Federal Reserve is Zeus, China is "probably" Poseidon, the underworld is ruled by computer trading, and Aphrodite and Hermes, who could "seduce anyone," are communication policies by central banks and the public sector.
- Greek Gods, ever fickle, would have "understood Draghi's flexibility but would have been appalled by a stubborn desire to return to fundamentals. For investors, one should either join machines & help Hades or retreat to investment niches."
"Investors are confused and ask when normality would return. Never."
That's how Macquarie analysts Viktor Shvets and Perry Yeung view the market right now. They detailed their outlook in a new report, "What lessons can Greeks teach investors?" because sometimes the stock market in 2019 behaves in such a way that pushes analysts and strategists to look 3,000 years into the past. Stocks, after all, are tossed around by computers, tweets, central bankers, and concerns over global growth.
So they say investors ought to consider creatures of Greek mythology to understand the ins and outs of today's financial markets.
"Greek Gods had a very flexible understanding of morality," Shvets and Perry wrote. "They were alternatively angry, vindictive and generous. They would have understood Draghi's flexibility but would have been appalled by a stubborn desire to return to fundamentals."
The analysts, based in Hong Kong, place an emphasis on how heavily they believe central bankers' communication has influenced the market, and how the market is devoid of fundamental consideration.
"Eurozone is lost in a maze of its regulations while Trump pursues his own toxic messaging," Shvets - known for his out-of-the-box investing interpretations - and Yeung told clients. "At the same time, economists are lost in their models, which have at best only a tenuous relationship with reality."
The S&P 500's 2018 peak was around the time Jerome Powell, the chairman of the Federal Reserve, said we were "a long way from neutral," suggesting further interest-rate hikes were on the way. Then, earlier this month, Federal Reserve meeting minutes showed officials "could afford to be patient about further policy firming" - the S&P 500 has since gained 3%.
"While in the past, communications were there to explain policies; today they are the policies," the duo wrote.
"They create reality, or destroy it in seconds, with Hades diligently dragging 'victims' (whether companies, CEOs, analysts or investors) into the underworld. A misplaced word or a phrase can either freeze or open high yield markets. They can lead to sudden stock rotations, or steepening of the yield curve (after an inversion only 24 hours earlier), or to a collapse of mortgage applications."
Here are a few of the parallels Macquarie makes between Greek mythology and market participants today.
- The Federal Reserve is Zeus. "They might not be called Gods anymore, but there is no doubt that the Fed is today's equivalent of Zeus, with rates & liquidity being its thunderbolt."
- China is Poseidon. "China is probably a Poseidon, without which global flows, supply chains and output would grind to a halt, just as Poseidon connected the Ancients."
- Machines are the underworld. "Today's underworld is unquestionably ruled by technology, with AI, computer trading, algos and ETF's capable of dragging anyone to the realm of the dead."
- Central bankers' messaging is Aphrodite and Hermes. "However, the most powerful were Aphrodite and Hermes, who could seduce anyone, both mortal and divine; their today's equivalents are communication policies by [central banks] & public sector."
Put another way: "Although Zeus was the most powerful, Poseidon and Hades were far more feared while some minor Gods like Aphrodite (goddess of love) and Hermes (messenger of Gods and later a token of luck for merchants, thieves and financiers) were more persuasive."
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