The Grip Of Paranoia, Libertarians and Insanity

Market is talking about the suicide of a trader or salesperson in Hong Kong as was reported in the SCMP and Apple Daily.

The word is that he was just 33 and little else on his motives.

I came across an interesting article on a new social archetype recently. The paranoid libertarian which caught me a little off guard and got me confused on the difference between a liberal and a libertarian which I have always assumed were one and the same.

The article gets very interesting because the paranoid libertarian is at odds with the angry liberal.

It defines a paranoid libertarian is someone who distrusts the government to an unreasonable extent while the angry liberal is a left winger who is extremely distressed by significant social ills (inequality, inadequate health care, education) and seeks someone to blame for them. And by then, I managed to catch on that the paranoid libertarian should be the rich guy getting taxed to hell against the angry liberal upper middle class who has the time to consider social issues over and above the need of his next meal.

Fortunately, this deadlock does not exist in Singapore. After brief consideration, I realise I would never make the cut to be a liberal or whatever as much as I would not have minded being labelled an anarchist for the cool effect at some earlier point in my life.

There is a reason for paranoia these days if you ask me, starting with central banks and governments with the Federal Reserve now setting new standards for foreign banks to hold more capital in the US and Bloomberg is right to point out the rapidly fragmenting world.

In fact, WSJ’s central bank watcher Hilsenrath had observed a week ago that the Fed and BoE have both taken polar opposite views to the problem of long term unemployment and the slack or absence of economic slack it presents.

It is not just them, the rest of the horde are singing to different anthems too.

If you have read John Mauldin’s latest Thoughts from the Frontline – The Economic Singularity, there are 2 types of cycles. The typical business cycle and the debt supercycle.

Debt occurs for 3 reasons, according to the Minsky’s Financial Instability Hypothesis :
1. to generate additional profits to pay off the loan (hedge)
2. to roll over loans (speculative)
3. to make capital gains (Ponzi)

Option 3 is the most speculative.

Taken from the article.
“Minsky’s Financial Instability Hypothesis suggests that over periods of prolonged prosperity, capitalist economies tend to move from a financial structure dominated by (stable) hedge finance to a structure that increasingly emphasizes (unstable) speculative and Ponzi finance.”

It would be slightly paranoid to assume that all corporate bonds and finance deals out there amount to Ponzi, or worry even about the snowballing national debts of all the countries seeking financing. We have to assume that the money would be paid back at some point in time. And it is impractical to think about this in Feb 2014 when we have the S&P riding just 0.5% off its historic high.

But it is a singular world and even charismatic Raghuram Rajan, head of the RBI, sees it clearly. To quote his words, “We’re all in this together”. Even if our problems are different and we each have to find our own way out of it like Mauldin says.

The fact that paranoia is growing and after Fed’s new foreign bank capital rules yesterday, we have the People’s Bank of China’s new bank liquidity rules today (WSJ) and another announcement on broadening the cross border usage of the yuan as China dumps the most US treasuries since 2011 (Bloomberg).

I admit I am increasingly paranoid about markets and society at large. I do not think recessions will go down well these days. It is just the way it is as my son and I were given the rude snub today by not 1 but 3 sanitary ware shops because our request was too small for them (and perhaps because we looked a little too shabby and not the type to have the latest fad of leopard printed wash basins in our house). Gee, I am unemployed for goodness sake, and would not like to get into debt to change my wash basins.

That aside, paranoia does not always lead to insanity. Despair drives us over the edge, like the suicide in Hong Kong, rest his soul.

As some of my friends have informed me that they have given up on a market crash and cut most of their equity shorts, I am sitting it out. Maybe I am in no rush to buy a new car although my car’s warranty has just run out, or maybe I am not keen to waste time despairing on the timing of the inevitable crash. My only concern is that the paranoid libertarians and the angry liberals will be dividing society going ahead and after the populist Budget we are expecting for Singapore on Friday.

Trade Idea : Sell STI at 3100 or any Budget inspired uptick for target 3000 and buy me a leopard wash basin if you make a profit.