🔔 Everything is broken, even 'Truth'

Today's Opening Belle is brought to you by our partners, Equos and Utrust.

Looking for a crypto exchange? Give Equos a try (they've released an exchange token, similar to BNB and FTT 👇

AND the UK's FCA has just approved Digivault, which provides institutional investors with a solution that makes digital asset custody simple and secure.

Want to incorporate crypto payments into your business? Definitely use Utrust.

We only work with partners we know, trust and have a strong product.

No exceptions.

Everything is changing & everything is different (or going to be)

Just LOOK AT THIS and I'll show you the light...

The bombardment of headlines continues.

There are far more questions than answers and every keyboard has worn out the letters U N P R E C D T

Yes, In these unprecedented times, the only consensus is that everything will be different somehow 

Different to how things were before, different to how things are now, but things will definitely be different.

Different is the only thing there seems to be consensus on.

On everything else, there's huge disagreements.

Obviously, this is nothing new in financial markets: disagreements are normal, and by the time something is widely accepted as truth it is already ancient history/priced in.

Until recently, these disagreements were usually more technical... & more clearly defined.

Boring debates like:

• Will 'central bank name' hike/cut at this meeting or wait until the next?  

• Will unemployment be 4% or 4.1% this year?

• Will the S&P daily range be 20 ticks or 25 ticks today?

These types of closed questions are relics of far more stable and boring times.

Now, the dominant questions are so open-ended they are almost existential.

Will city life ever be the same?

Is travel changed forever?

Is this a new era for UBI and the end of wealth inequality?

and so on...

In a rational world, people would humbly admit that it's actually pretty difficult to forecast the future...

Right now it's practically impossible to piece together all of the second and third order effects rippling across the world and build a coherent story too far into the future.

Lumber is a fantastic example.

There's plenty of available wood. Loads of trees.

But the shortage of saw mill capacity has caused the issue: the bottleneck is in the processing rather than the raw material.

The mills won't invest in more capacity, because they understand that this is unlikely to be permanent...

But higher prices could stick around for a while.

Rebalancing capacity constraints across global industries is not an efficient & smooth process. It also takes time.

The global chip shortage will continue too, not helped by a Taiwan lockdown

This is happening as auto production is already slowing due to the shortage 👇

Huge investment is going into semiconductor capacity globally, but that won't bear immediate fruit.

All of which means these elevated prices may stick around for a while longer...

Coming soon: how transitory is transitory inflation?

How far can the definition be stretched?

This is why it's so important to understand the purposes of a policy.

The Fed's shift to AIT is intended to bring about full employment on the basis that inflation will be transitory unless it is also driven by inflation in wages...

We're not going back to the 70s (unless someone puts unions on the blockchain) 👇

All of which means the hysteria is likely to get worse before it gets better.

How can we navigate the seas of hysteria?

That quote is from the four theories of truth, a great framework to lean on when trying to interpret information.

Let's run through each and add a market example.

• The correspondence theory of truth — that whatever corresponds to observable reality is true.

This one's EASY. The cost of commodities has increased therefore higher inflation is BACK. Surface-level thinking. Zero questions or depth of understanding shown. Kahneman's famous What You See Is All There Is explains this perfectly... If it seems simple, it's best to assume that some key context is missing.

• The coherence theory of truth —  that claims are true if they follow logically and coherently from a set of axioms (or intermediate propositions).

This one is all about the presentation. ARK's recent post on Bitcoin mining being a renewable energy solution is a great example. The way the information is presented is exceptionally coherent, and you could be forgiven for thinking that this would be an inevitable outcome...All of the political and regulatory hurdles are ignored, but it is definitely coherent.

Coherent = compelling.

• The consensus theory of truth — that what is true is what everyone agrees to be true.

A market favourite: What everyone knows that everyone knows...

The Fed put will always exist.  

• The pragmatic theory of truth — that what is true is what is useful to you, or beneficial for you.

Is Elon Musk a scammer engaging in pump and dump schemes purely for profit? Or does he have other motivations? Is it even useful for me to know this as a trader? Or do I just need to pay attention to the fact that the market behaves as if Elon were pumping and dumping?

Truth is as much a myth as the efficient market hypothesis, but we all pretend it exists in one form or another (because it is useful for us to do so)

Truthseekers will find exceptionally slim pickings in the coming months, so here are a few questions to ask when trying to filter the probabilities of something being true and deciding if it should influence or alter your view:

• CorrespondenceDo the claims match up to my experiences? Can I come up with counter-examples or edge cases where the ideas do not apply?

• CoherenceAny logical fallacies? Does the argument flow coherently and logically from premises to conclusion?

• ConsensusWho else agrees with this argument? Is it arguing against a consensus, and if so do I trust that consensus?

• PragmaticIs this believable? Can I come up with a test to see if the argument works?

Happy hunting!