There’s a foreign policy theory–called the “Madman theory”–that it’s actually good to have a crazy president, because the saner heads of rival nations will humor him, since no one knows what he’s capable of. I think the reaction of other countries to Trump’s war in Iran has pretty much destroyed that theory. (And it has become abundantly clear that Trump’s insanity isn’t an act…)
But I recently came across an intriguing offshoot of the Madman theory in connection with the stock market
As Jonathan Last, the author, notes, the American economy is not exactly great right now. Not only did the closure of the Strait of Hormuz send oil prices soaring, but in the run-up to that event, job growth had slowed and both unemployment and inflation had spiked. (As I write this, the Strait has been opened due to a cease-fire, but there’s no way to know how long that will last.)
Last reproduces two news items that he wants readers to rationalize:
First, the Financial Times on April 13:
The last oil tankers to traverse the Strait of Hormuz before the outbreak of war will reach refineries in the coming days, in a pivotal moment analysts warn could herald physical shortages in Europe and the US within weeks.
The final ships to clear the strait before the Iran war began on February 28 are expected to reach their destination in Malaysia and Australia by April 20, intensifying the supply shock rippling across Asia.
But with Asian refineries responding by buying up a record number of crude oil cargoes that would normally have sailed to Europe and the US, analysts said refiners in some of the world’s wealthiest countries may soon also face shortages.
“It will hit the west in a month when all the Asian cargoes bought leave the Atlantic basin,” said Nic Dyer, an analyst at Energy Aspects.
And here’s the FT two days later:
S & P 500 hits record high as markets surge back from Iran shock.
I find it utterly mystifying that the stock market continues to exhibit exuberance while our Mad King is wreaking havoc with both world peace and the global economy. But Last–very much unlike yours truly–has a theory. And frankly, I find the theory as bizarre as the world according to Trump that we are nervously inhabiting.
Here’s his theory:
Here’s my Madman Theory of the Stock Market:
The more intensely speculative a market is, the more it views chaos as opportunity instead of risk. When stability is the norm, chaos is an outlier—and so it presents risk.
When chaos is the baseline, there is no inherent risk to it. Therefore any outbreak of normalcy creates opportunities for growth and optimism.
Last spends the rest of the essay expanding on that theory, and I invite you all to click through and read his defense of what seems to me simply evidence that America’s stock market–and those who invest in it–are crazy. He begins by pointing out that the market is dominated by speculators, and it’s hard to disagree with that. Financial commentators have noted that, rather than reflecting prudent opinions about the likelihood of a given enterprise growing its market share and profits, the market has morphed into something that looks a lot like gambling.
And where there’s gambling, there’s game-playing.
Last shares an example: Allbirds recently announced it was changing from a company that makes shoes into an AI company. But that really isn’t true. Apparently, an investor struck a deal with Allbirds, which was a distressed business at the time, agreeing to buy $5 million of Allbirds stock—with an option to buy $45 million more—for $2.49 per share. In return, Allbirds announced that it would pivot to AI, although it didn’t plan to do so. The investor put up $5 million on a calculation–a gamble– that the mere mention of “AI” would be enough to push the Allbirds stock up and that it would stay elevated long enough that he could dump it at a profit.
As Last accurately notes, this farce has nothing in common with business. It’s a casino bet. And that bet is paying off. At the time he wrote, the stock was at $18.82.
So I’m not persuaded by Last’s “chaos theory.” I propose a simpler, if more depressing, explanation. Given the recent rise of gambling on everything from sports to politics, the market is no longer a place for calculated investments in sound businesses; it has morphed into yet another gambling parlor.
The whole world is mad, in both senses of that word.
“So I’m not persuaded by Last’s “chaos theory.” I propose a simpler, if more depressing, explanation. Given the recent rise of gambling on everything from sports to politics, the market is no longer a place for calculated investments in sound businesses; it has morphed into yet another gambling parlor.”
Sheila; the entire blog today, especially your summation, reminds me of my questioning the years ago prediction of coming freezing and below temperatures in Florida which would destroy orange crops. Prices on orange juice everywhere immediately escalated and never returned to levels prior to that freeze warning. Today, we are wondering about gas prices, due to Trump’s war on Iran for reasons known only in his garbled brain, will they really return to reasonable rates or only drop by pennies to prove Trump’s repeated declaration that gas prices will go down.
I remember in 1972 when gas prices escalated to .50 a gallon and I raised hell with the gas station owner as I paid $5.00 to fill the tank on my 1967 Mustang. We had another Republican madman in the Presidency at that time who had closed ports to incoming gas tankers to assure maintaining the high gas costs. I learned that fact directly from a Harbor Master from Florida who was visiting the director of the City office I worked in, he was taking advantage of his time off. Our own madman today is working from the opposite end where the gas tankers leave ports to deliver gas globally. War is definitely a drastic step to take to assure increasing gas costs, and costs of everything else in the market; wars and chaos reign under Republicans, our 250 year history proves those facts.
Sheila’s bet on gambling parlors; allow me to introduce everyone to the website:
https://polymarket.com
You can bet on anything, so it’s not just sports. You can bet on when the leaders of countries are kidnapped or when they’ll be killed. You can make yourself completely anonymous and have you winnings and losses in crypto.
There are many journalists that have added Polymarket to their investigative research. From what I’ve read, there seems to be someone with inside information who are making a fortune off their bets.
Trump is all about himself, and I can certainly see Don Jr making bets after his dad calls him before he announce it to the press.
And I read this morning from one source who believes that Trump’s “permanent ceasefire” with Iran is a way for Trump not to admit a defeat. We’ll have to wait to see what the middle-school minded Madman decides.
And, why in the hell is Germany picking a fight with the Kremlin? I can still remember all those trained EU “leaders” say that Russia is taking apart appliances to get what they need, while one of them said they would defeat Russia and break into smaller pieces. They also announce that Russia was running out of ammunition.
It certainly is possible that some of this chaos is intentional in order to make billions. And the other part is we have a demented baby leading our country.
IMHO the NYSE became a gambling casino a long long time ago. Wasn’t the original idea that it would be there to support the best ideas and marketing and success of listed companies? Now it has become a plaything for the wealthiest and connected folks in America, vis-a-vis secretive, timely information in order to pounce on the right stocks to make a killing, information that only they have access to, namely, the mercurial pronouncements of our chaotic POTUS.
Oh, and then there is a concurrent theory that says djt is determined to continue in this war-like stance in order to keep any mention of Epstein and the Files under the radar. How better to do that than keeping everyone’s attention on an illegal “war” completely of his own making.
Todd, rumors abound that WE are running out of ammunition too. Maybe our military should start going to the Proud Boys and other idiot level militias for their bullets. Too bad they don’t make missiles.
I saw the first rumor about the Chairman of the Joint Chiefs of Staff denying Trump the codes to launch nuclear missiles. Probably false, but damn! Are we at that point with the psychopath?
Just a few little comments…
First, on “When chaos is the baseline, there is no inherent risk to it.” This is so ridiculous and stupid that I can’t fathom someone intelligent writing it. The only excuse I can come up with is that’s what Last is suggesting _other_ dumb people think about the market. But it doesn’t read as though that’s what he is saying.
Second, the stock market is definitely gambling.
Third, I imagine most investors as members of a flock of small birds, forming weird, unpredictable patterns as they wing around the sky, reacting and following in ways they don’t really understand at all.
Fourth, on Vernon’s comment, there is no doubt in my mind that Trump desperately wants to use a nuclear weapon. And, it could happen. It’s one of the many reasons I am so angry with the USA these days.
John Hawthorne; I have always viewed the Stock Market as a crap shoot between corporations with the wealthy keeping control of corporations and helping one another get wealthier.
Of course, I failed math in school so what do I know except that under President Clinton my few gambles on Mutual Funds increased by $2,000 in his last 18 months in office and I lost $6,000 under President George W Bush in his first 18 months in office and a few years later had only recouped about $2,000. I switched to CDs and stick with them these days.
I’ll sign off on your dissertation. You now have a PhD in economics
Chaos , in this case is, not hard to find the logic in. If OJ profits, it’s all good.
Think about who owns the stocks. According to Robert Reich, “The top 10% of richest Americans own 87% of stocks.” That means the markets are a giant poker table with the ante out of reach for 90% of the population.
Now we have a huge private company with billion dollar government contracts moving to buy AES, our local electric utility company, currently a public/private concern. Blackrock, currently the controlling majority stockholder in GEO Group and Corecivic (private prisons and detention centers) want to buy AES and take it private. If past history is any predictor, the assets will be stripped, the employees laid off, bought out or fired, the fees attached to services increased while rates remain fairly stable because of the IURC oversight and consumer service abysmal if even available at all.
No regulation, no recourse as the service delivery is a monopoly. It will no longer be a public utility but a privately held corporation that is in it purely for profit, the public be damned.
The oligarchy will only get wealthier while the rest of us continue to feed the beast, involuntarily because there is no alternative.
It is a giant grift that the voters put in place not once, but twice. He is a tool being used by his family and lackeys to play the system.
Sen. Young keeps telling us how he is pushing to making stock trading by Congress members illegal while in office. What a joke when his party head is playing poker with a stacked deck and continues to pull aces out of his sleeve almost hourly to promote as much chaos as possible so we all are distracted as our pockets are being cleaned out and the files go unreleased.
Chaos is certainly our current norm.