The Royal College of Psychiatrists in the U.K. says someone with bipolar disorder will have severe mood swings.
These usually last several weeks or months and are far beyond what most of us experience. In the low or “depressive” state there will be feelings of intense depression and despair. In the high or “manic” state there will be feelings of extreme happiness and elation.
By this definition, the financial markets must have bipolar disorder.
Just a few days ago, they were crashing. Now they appear to be already in the “manic” phase. “Mania is an extreme sense of well-being, energy and optimism,” as the Royal College puts it. Yet objectively very little has changed to explain this mood swing.
On Friday, it was the same everywhere you looked. At the time of writing, stock markets were solidly higher in London, Frankfurt and Paris. And there were gains throughout the commodity complex: in oil and gold, silver and copper, sugar, cocoa and coffee to name just a few.
Over in the government bond markets, yields were higher. And in the currency markets there were gains for those currencies that generally benefit from an upswing, like the euro and the Australian dollar, at the expense of those seen as havens in troubled times, such as the Japanese yen and the Swiss franc.
Traders and analysts have shorthand for days like this. They call it “risk on”, and their notes are peppered with references to “increased risk appetite” or “a reduction in risk aversion.”
There’s generally an excuse for this mood. In Europe this session, it was a set of rather better than expected economic growth figures from Germany, France and the euro zone as a whole in the initial three months of this year.
But that misses two important points. The first is the way all the markets are moving together, even when there’s no reason for them to do so. What, for example, is the connection between coffee and the yield on a U.S. Treasury bond?
The second is that while there’s often a time lapse in bipolar disorder between what the Royal College calls “feelings of unhappiness that won’t go away” and the following “very happy and excited” stage, in the financial markets the mood can change in a moment.
By the time you read this, risk aversion may have succeeded risk appetite. And that’s something that irritates policymakers no end. It creates instability and makes a mockery of the idea of the markets being “efficient” at setting prices.
It is a disorder in urgent need of a cure.
These usually last several weeks or months and are far beyond what most of us experience. In the low or “depressive” state there will be feelings of intense depression and despair. In the high or “manic” state there will be feelings of extreme happiness and elation.
By this definition, the financial markets must have bipolar disorder.
Just a few days ago, they were crashing. Now they appear to be already in the “manic” phase. “Mania is an extreme sense of well-being, energy and optimism,” as the Royal College puts it. Yet objectively very little has changed to explain this mood swing.
On Friday, it was the same everywhere you looked. At the time of writing, stock markets were solidly higher in London, Frankfurt and Paris. And there were gains throughout the commodity complex: in oil and gold, silver and copper, sugar, cocoa and coffee to name just a few.
Over in the government bond markets, yields were higher. And in the currency markets there were gains for those currencies that generally benefit from an upswing, like the euro and the Australian dollar, at the expense of those seen as havens in troubled times, such as the Japanese yen and the Swiss franc.
Traders and analysts have shorthand for days like this. They call it “risk on”, and their notes are peppered with references to “increased risk appetite” or “a reduction in risk aversion.”
There’s generally an excuse for this mood. In Europe this session, it was a set of rather better than expected economic growth figures from Germany, France and the euro zone as a whole in the initial three months of this year.
The second is that while there’s often a time lapse in bipolar disorder between what the Royal College calls “feelings of unhappiness that won’t go away” and the following “very happy and excited” stage, in the financial markets the mood can change in a moment.
By the time you read this, risk aversion may have succeeded risk appetite. And that’s something that irritates policymakers no end. It creates instability and makes a mockery of the idea of the markets being “efficient” at setting prices.
It is a disorder in urgent need of a cure.
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