Normalization, Regime Change, and Adaptation

Some “financial experts” often claim that “history repeats” and sarcastically say “this time is different” (implying it never is)… are these heuristics correct? I think not: the Internet did not always exist, and the world has changed as a result of the internet. Cryptocurrencies have/are redefining ‘bubble’. These examples, sufficiently falsify the above-mentioned heuristics (yes, some things remain the same: we still die, we still depend on food/water to survive, etc).

For my own edification, I wanted to jot down a few disparate thoughts (that may interrelate):

  • Regime Change  and Normalization – Many have been talking about regime change that would take place in markets once nominal interest rates started normalizing (i.e., return to historic averages)…. in light of the recent activity in the volatility complex, what would happen if the volatility regime were to normalize as well? 2017 was the exception, not the norm…
  • Markets are adaptive because its participants are adaptive – I’ve observed that market participants’ behavioral tendencies are often coloured by the formative experiences associated with their past profits and losses… we seem to think that the same formula for success/failure in the past is what is needed for the present/future generation of profits… I have found this not to be true. As that Intel Founder famously warned: Innovate or perish.
  • “Don’t invest in things you do not understand” –  I’ve heard this expression come in vogue (again) in recent days, in the aftermath of the volatility complex blowups… my friend used to say, “If you don’t understand it, you should short it.”




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