Buying the Populist Dip

Most of us learned about Pavlov and his dogs back in highschool. The concept of classical conditioning, now a central part of behaviorism (a school of psychological thought), was first put forth by Ivan Pavlov in the early 20th century. Pavlov trained his dogs to associate the ringing of a bell with the assumption that they were about to be fed. The dogs quickly developed the biological response of salivating as soon as they heard the bell ring, regardless of whether they actually received food. 

This type of classical conditioning works for more than just dogs…

Check out the chart below:

AB1.5.17.png

This chart from BofA shows the market continuing to set new records in both the speed and aggressiveness in which it “buys the dip”.

There’s a strong Pavlovian response occurring here:

Market Selloff = Bell

Salivation = Buy Dip

George Soros explained how responses like this, though sometimes short-term positive, are in reality long-term dangerous (emphasis mine).

Every bubble has two components: an underlying trend that prevails in reality and a misconception relating to that trend. When a positive feedback develops between the trend and the misconception, a boom-bust process is set in motion. The process is liable to be tested by negative feedback along the way, and if it is strong enough to survive these tests, both the trend and the misconception will be reinforced.

The last three major market selloffs were caused by important geopolitical events — all having to do with the global populist movement. These events, Brexit, Trump, and the Italian No vote, were all viewed by the market as potentially risky. And even though each resulted in the risky outcome, markets responded with increasingly aggressive dip buying each time.

Now here’s why this is important. The overwhelmingly positive market response to each event signals to the populist movement that protectionism and nationalism are economic positives, while geopolitical unions and free trade are not.

It also serves as a signal to investors of the strength of the market (ie, if Brexit and Trump can’t send the market lower, what can?)

This signalling will likely invigorate the populist movements and their leaders. It’ll push them to be more aggressive in asserting their policies because they see rising prices as validation. This feedback loop between populist politics and markets will strengthen with each dip bought. This means that the more positive the market’s response, the more aggressive populist movements should become.

And that’s where things become a problem. In the long-term, protectionism (ie, trade wars and anti-immigration policies) are economically bad. This is a fact. The world will become a poorer place if we erect barriers to both trade and the flow of people between nations. The last time the world entered a secular protectionist regime was in the late 1930’s. Historically, increasing economic non-cooperation between nations eventually leads to armed conflict.

This brings us to today. We find ourselves at a point where the market and its narrative are becoming overwhelmingly optimistic. This should lead to volatile moves higher in the indices in the coming months. But at the same time, this optimism is sowing the seeds for its own end; as reality diverges from narrative once again, eventually leading to another regime change. Here’s Soros to sum things up:

A positive feedback is self-reinforcing. It cannot go on forever because eventually, market prices would become so far removed from reality that market participants would have to recognize them as unrealistic. When that tipping point is reached, the process becomes self-reinforcing in the opposite direction.

Nearly half the S&P’s revenues come from overseas. Enacting tariffs on imports would result in retaliatory responses. Trade wars first lead to higher prices and then inflation.

Forcing companies to keep manufacturing jobs in the US will raise production costs. Those production costs will be passed through to the consumer in the form of higher prices, which means more inflationary pressures and higher rates. Higher rates means higher financing costs and tighter liquidity.

The bull narrative will go on until these higher rates force the economic reality of protectionism onto market participants. Then this whole self-reinforcing process will then work in reverse. My guess is that this won’t happen until the ten year is yielding between 3.25 and 3.5%. That’s when we’ll need to look out below… 

Interested in learning how to analyze false trends? If so, check out our Macro Ops Handbook here

13 Comments

Join In on this conversation, post a comment below.
Visitor - ashutoshweb3: Academic Writing Services Best Academic Writing Services Cheap Academic Writing Services academic research paper academic writing help academic assignment help academic assignment academic assignment writing academic writing online academic writing sites academic writing websites best academic writing service online academic writing website writes essays for you where can i buy an essay online student essay writing services simple essay writing short essay writing purchase essay online purchase essay professional essay editor professional custom essay writing service pay for essay writing pay for essay online paid essay writing order essay online cheap order custom essay order an essay online need help writing an essay need essay written my essay services make an essay law essay writing service help with my essay help with essays assignments i need help writing an essay buy essay online cheap buy essay cheap buy custom essays online buy cheap essay buy essay best essays do my essay essays online essay writer free best essay writing service essay help essay help essay help essay help essay help essay help essay help essay help essay help essay help essay help essay help essay help essay writers for hire essay writer free online essay for me essay editing service custom essay order college essay help best essay writing best essay service best essay help best essay editing service write my essay for me cheap write my essay for cheap write my essay cheap write me an essay write essay for me write a essay pay to write essay pay for essay pay for essay pay for essay top quality essay writing services university essay writing service written essay papers write a essay for me essay writing help service essay writing assignment help website that writes essays website that writes essays for you order essay online help writing essays help me write my essay help me write an essay assignment essay help topic essay writing application essay writing service admission essay writing service custom essays for sale custom essay papers writing service custom essay paper writing service custom essay help cheap essay writing service online buy essay papers online buy cheap essays online buy an essay online cheap buy an essay cheap buy a essay best essay writing website best essay writing company best essay writers site best essay writers online best essay websites best writing essay best cheap essay writing service best custom essay best custom essay writing service help to write an essay help with an essay help on writing an essay help my essay help me write a essay help me with my essay help essay good essay writing get essays written for you get an essay written for you fast essay writing service essays written for you essays online to buy essay writings essay papers online essay order online essay papers for sale essay writing assignment essay assistance essay assignment help custom essays online Report writing Service cheap report writing service best report writing service report writing service reviews custom report writing service college report writing service cheapest report writing service cheap report writing services cheap custom report writing services top report writing service best report writing service reviews professional report writing service online report writing service Paper writing service college paper writing service term paper writing service college paper writing service reviews paper writing service reviews best paper writing service cheap paper writing service custom paper writing service cheapest paper writing service cheap paper writing services cheap custom paper writing services top paper writing service best paper writing service reviews professional paper writing service thesis maker write a thesis statement for me help with thesis statement thesis help online help writing a thesis best technical writing service best technical writing service thesis help services help writing a thesis statement well written thesis statements help with writing a thesis help with thesis help writing thesis statement make me a thesis statement help with a thesis statement doctoral thesis online custom thesis writing create thesis create my thesis give me a thesis statement i need a thesis statement i need help writing a thesis i need help writing a thesis statement create a thesis statement for me build a thesis best thesis writing service thesis writing help write my thesis thesis statement help research paper thesis write a thesis statement thesis help thesis statement maker thesis generator thesis generator online thesis professional thesis writing service research paper thesis generator essay thesis generator check my thesis statement online check my thesis statement thesis generator write my thesis statement make a thesis write your thesis thesis statement writer help me write a thesis help thesis dissertation help do my dissertation online dissertation writing service online dissertation help need dissertation help masters dissertation help help writing thesis statement help writing a dissertation help with writing a dissertation help with dissertation writing help with dissertation help dissertation find dissertations onlin doctoral dissertations online doctoral dissertation help dissertations and theses dissertation writing help service dissertation writing assistance dissertation website dissertation paper writing services dissertation help online custom dissertation services custom dissertation help cheap dissertation service dissertation completion fellowship write my dissertation professional dissertation writers dissertation assistance dissertation help service dissertation service dissertations online writing a dissertation best dissertation best dissertation writing best dissertation service best dissertation help cheap dissertation online dissertation research paper help online online research papers research papers online order research paper research writing services research papers writing service research paper writing company help writing a research paper help me write my research paper cheap research paper writers best research paper writers write my research paper for me research writing buy research papers research papers for sale cheap research papers help with research paper best research writing services writing research papers best research paper writing service Technical writing services cheap technical writing service best technical writing service technical writing service reviews custom technical writing service technical writing service college technical writing service cheapest technical writing service cheap technical writing services cheap custom technical writing services top technical writing service best technical writing service reviews professional technical writing service online technical writing service Business plan writing services business plan writing service business plan writing services cost professional business plan writing business writing services cheap business plan writing service best business plan writing service business plan writing service reviews custom business plan writing service college business plan writing service cheapest business plan writing service cheap business plan writing services cheap custom business plan writing services top business plan writing service professional business plan writing service online business plan writing service assignment help my assignment help accounting assignment help assignment help online Nursing assignment help online assignment programming assignment help write my assignment pay someone to do my assignment assignment help service free assignment help price assignment help online experts assignment help for students assignment help assignment help companies assignment assistance online all assignment help online affordable assignment help accounting assignment help accounting assignment assignment expert online assignment help my assignment services help with assignment do my assignment online do my assignment for me do my assignment best assignment writing service assignments online help writing assignments assignment writing service help with writing assignments help with university assignments help with my assignment help with homework assignments help with assignments online help with assignments help with assignment writing help me with my assignment help in assignment writing help in assignment help for assignment help assignment online help assignment get assignments done online get assignment help online get assignment help geography assignment help free assignment help finance assignment help Expert assignment help english assignment help engineering assignment help Electrical engineering assignment help economics assignment help custom assignment writing service custom assignment writing custom assignment help coursework assignment help computer science assignment help computer assignment help college assignment help civil engineering assignment help cheap assignment help c assignment help buy assignment help business assignment help biology assignment help best website for assignment writing best online assignment help best assignment writing help best assignment help Assignments writing website assignments help online assignment writing help service assignment writing company assignment writing assistance assignment online help websites assignment homework help assignment help help writing assignments help4assignment hnd assignment help homework assignment help homework assignment help online homework assignments online it assignment help law assignment help law assignment writing law assignment writing service make assignment online make my assignment management assignment help marketing assignment marketing assignment help marketing management assignment math assignment help mba assignment help Need assignment help need help assignment need help with assignment nursing assignment writing service online assignment expert online assignment maker online assignment work online assignment writing online assignment writing help online assignment writing service online assignment writing service Online assignment writing services online assignments online assignments help online homework assignments online writing assignments operation management assignment order assignment order assignment online professional assignment writers professional assignment writing help programming assignments help project management assignment help quality assignment help science assignment help student assignment help the assignment help tourism assignment help university assignment university assignment help university assignment writing services write me an assignment write my assignment for me write my assignments writing an assignment writing assignment help writing assignment online writing assignments online best assignment writing buy an assignment buy assignment online buy assignments buy assignments online cheap assignment writing custom assignment pay for assignment pay for assignments pay someone to do your assignment pay to do assignment pay to do my assignment do assignment for me do my assignment cheap assignment assistance assignment maker assignment makers assignment masters assignments experts do my assignments find assignments online help my assignment help to do assignment i needs help with my assignment online assignments for money best assignment cheap assignments expert assignment mba assignment writing buy assignments do my homework help with homework accounting homework accounting homework help college homework help finance homework help free homework help homework service homework tutor live homework help programming homework help statistics homework help writing homework help homework homework help free engineering homework help homework help services homework writing homework writing service university homework help writing homework help homework help websites homework help online homework help online free homework help online free chat homework online online homework online homework help
Reply Flag
Visitor - anjilo smith: Quicken Tech Support Phone Number Quicken Support Number Quicken Support Phone Number Quicken Tech Support Number Quicken Tech Support Phone Number Quicken Technical Support Number Quicken Technical Support Phone Number Quicken Customer Support Number Quicken Customer Support Phone Number Quicken Customer Service Number Quicken Customer Service Phone Number Quicken Deluxe Support Number Quicken Deluxe Support Phone Number Quicken Deluxe Tech Support Number Quicken Deluxe Tech Support Phone Number Quicken Deluxe Technical Support Number Quicken Deluxe Technical Support Phone Number Quicken Premier Support Number Quicken Premier Support Phone Number Quicken Premier Tech Support Number Quicken Premier Tech Support Phone Number Quicken Premier Technical Support Number Quicken Premier Technical Support Phone Number Quicken Home & Business Support Number Quicken Home & Business Support Phone Number Quicken Home & Business Tech Support Number Quicken Home & Business Tech Support Phone Number Quicken Home & Business Technical Support Number Quicken Home & Business Technical Support Phone Number Quicken Rental & Property Support Number Quicken Rental & Property Support Phone Number Quicken Rental & Property Tech Support Number Quicken Rental & Property Tech Support Phone Number Quicken Rental & Property Technical Support Number Quicken Rental & Property Technical Support Phone Number Quicken Starter Edition Support Number Quicken Starter Edition Phone Number Quicken Starter Edition Tech Support Number Quicken Starter Editionr Tech Support Phone Number Quicken Starter Edition Technical Support Number Quicken Starter Edition Technical Support Phone Number
Reply Flag
Visitor - anjilo smith: Quickbooks Support Phone Number Quickbooks Support Number Quickbooks Support Phone Number Quickbooks Tech Support Number Quickbooks Tech Support Phone Number Quickbooks Technical Support Number Quickbooks Technical Support Phone Number Quickbooks Customer Support Number Quickbooks Customer Support Phone Number Quickbooks Customer Service Number Quickbooks Customer Service Phone Number Quickbooks Pro Support Number Quickbooks Pro Support Phone Number Quickbooks Pro Tech Support Number Quickbooks Pro Tech Support Phone Number Quickbooks Pro Technical Support Number Quickbooks Pro Technical Support Phone Number Quickbooks Pro Customer Support Number Quickbooks Pro Customer Support Phone Number Quickbooks Pro Customer Service Number Quickbooks Pro Customer Service Phone Number Quickbooks Payroll Support Number Quickbooks Payroll Support Phone Number Quickbooks Payroll Tech Support Number Quickbooks Payroll Tech Support Phone Number Quickbooks Payroll Technical Support Number Quickbooks Payroll Technical Support Phone Number Quickbooks Payroll Customer Support Number Quickbooks Payroll Customer Support Phone Number Quickbooks Payroll Customer Service Number Quickbooks Payroll Customer Service Phone Number Quickbooks Premier Support Number Quickbooks Premier Support Phone Number Quickbooks Premier Tech Support Number Quickbooks Premier Tech Support Phone Number Quickbooks Premier Technical Support Number Quickbooks Premier Technical Support Phone Number Quickbooks Premier Customer Support Number Quickbooks Premier Customer Support Phone Number Quickbooks Premier Customer Service Number Quickbooks Premier Customer Service Phone Number Quickbooks Enterprise Support Number Quickbooks Enterprise Support Phone Number Quickbooks Enterprise Tech Support Number Quickbooks Enterprise Tech Support Phone Number Quickbooks Enterprise Technical Support Number Quickbooks Enterprise Technical Support Phone Number Quickbooks Enterprise Customer Support Number Quickbooks Enterprise Customer Support Phone Number Quickbooks Enterprise Customer Service Number Quickbooks Enterprise Customer Service Phone Number Quickbooks Error Support Number Quickbooks Error Support Phone Number Quickbooks Error Tech Support Number Quickbooks Error Tech Support Phone Number Quickbooks Error Technical Support Number Quickbooks Error Technical Support Phone Number Quickbooks Error Customer Support Number Quickbooks Error Customer Support Phone Number Quickbooks Error Customer Service Number Quickbooks Error Customer Service Phone Number
Reply Flag
Reply Flag
Visitor - anjilo smith: Quickbooks Tech Support Phone Number Quickbooks Support Number Quickbooks Support Phone Number Quickbooks Tech Support Number Quickbooks Tech Support Phone Number Quickbooks Technical Support Number Quickbooks Technical Support Phone Number Quickbooks Customer Support Number Quickbooks Customer Support Phone Number Quickbooks Customer Service Number Quickbooks Customer Service Phone Number Quickbooks Pro Support Number Quickbooks Pro Support Phone Number Quickbooks Pro Tech Support Number Quickbooks Pro Tech Support Phone Number Quickbooks Pro Technical Support Number Quickbooks Pro Technical Support Phone Number Quickbooks Pro Customer Support Number Quickbooks Pro Customer Support Phone Number Quickbooks Pro Customer Service Number Quickbooks Pro Customer Service Phone Number Quickbooks Payroll Support Number Quickbooks Payroll Support Phone Number Quickbooks Payroll Tech Support Number Quickbooks Payroll Tech Support Phone Number Quickbooks Payroll Technical Support Number Quickbooks Payroll Technical Support Phone Number Quickbooks Payroll Customer Support Number Quickbooks Payroll Customer Support Phone Number Quickbooks Payroll Customer Service Number Quickbooks Payroll Customer Service Phone Number Quickbooks Premier Support Number Quickbooks Premier Support Phone Number Quickbooks Premier Tech Support Number Quickbooks Premier Tech Support Phone Number Quickbooks Premier Technical Support Number Quickbooks Premier Technical Support Phone Number Quickbooks Premier Customer Support Number Quickbooks Premier Customer Support Phone Number Quickbooks Premier Customer Service Number Quickbooks Premier Customer Service Phone Number Quickbooks Enterprise Support Number Quickbooks Enterprise Support Phone Number Quickbooks Enterprise Tech Support Number Quickbooks Enterprise Tech Support Phone Number Quickbooks Enterprise Technical Support Number Quickbooks Enterprise Technical Support Phone Number Quickbooks Enterprise Customer Support Number Quickbooks Enterprise Customer Support Phone Number Quickbooks Enterprise Customer Service Number Quickbooks Enterprise Customer Service Phone Number Quickbooks Error Support Number Quickbooks Error Support Phone Number Quickbooks Error Tech Support Number Quickbooks Error Tech Support Phone Number Quickbooks Error Technical Support Number Quickbooks Error Technical Support Phone Number Quickbooks Error Customer Support Number Quickbooks Error Customer Support Phone Number Quickbooks Error Customer Service Number Quickbooks Error Customer Service Phone Number
Reply Flag

Related

What You Can Learn from the Michael Jordan of Trading

 There’s a handful of traders that can be considered part of the market “dream team”. Among them though,...

December 28, 2016

Market Intuition: A Gift Or A Curse?

Gut feel. It’s what a lot of traders rely on to make their decisions. If something feels right, they go...

December 16, 2016
stocks

The Process Behind Making A Profitable Global Macro Trade

The most important part of successful trading is process. In order to win in the markets you need to...

December 14, 2016
stocks

No More Down Years? What Living Legend Stanley Druckenmiller Can Teach You About Trading

The most amazing thing about Stanley Druckenmiller isn’t his record of over 30% returns the last three...

December 08, 2016

Earn Massive Returns With Cheap Optionality Stocks

Options are the trading and investing world’s number one temptress. As a new trader I immediately fell...

December 07, 2016