The Feeling Of A Full RESET

21. May 2013 Rahul value investing (0)
From the time we are born, we start to look at the outside world and start forming biases and opinions. We accumulate experiences and memories and develop an understanding about the world around us. While our past experiences and memories help us in learning from mistakes and help us in (hopefully) avoiding them in the future, they also create a large amount of baggage that weighs us down and can become exhausting and tiring to carry.

I used to love playing video games growing up and my father gifted me a Nintendo game system in my early teens. One of my favorite games on the system was The Legend of Zelda. The amazing thing about the game (amazing then) was that it was a role playing game and everything that one did could be saved in memory and one could pick up right where one left off. I would play the game over days and weeks. However, one of the things that I distinctly remember was the role that the RESET button played in my video-gaming life. Sometimes, the game I would be playing would become so convoluted and hopeless with my various mistakes and their outcomes, that it would become impossible to make any progress. It was at those times that I would hit the RESET button and erase all memory of what I had done over the previous few weeks to start afresh.

The financial markets are a culmination of the actions and mistakes of millions of individual participants and the markets have memory (albeit short term), biases and baggage just like individuals do. Markets develop biases about how different economies behave, their relative place in the world and the relationship between various commodities, currencies, bonds and equities. Market participants tend to mold their thinking and behavior around the biases of the market.

The last five years have been a Full Reset for the financial markets. Markets and market participants don't believe anything about anything anymore. They question everything and all relationships are up for scrutiny. All correlations and their lack there-off are looked at with suspicion. The amazing thing about a full reset though is that everything starts with a clean slate.

So while the markets no longer believe that developed economies and developed financial markets will remain the top dogs of the world financial order, they do not have an opinion about what place they will occupy in the global financial system. The market is clueless and ambivalent about Europe and is just as confused about Japan. The markets are rejoicing at Abe's monetary gimmicks, but don't have a clue about where Japan is headed. Is China going to be the future economic engine of the world or is it going to become stuck in a political and middle-income trap? Are commodities in short supply and are we in a super-cycle or is there enough stuff floating around and are we done with the commodity boom? Logically markets know that interest rates cannot remain at these levels forever, but where do we go from here? Is the dollar trash or is gold a barbaric relic? What does money mean in the current financial system? Is oil too expensive or too cheap? Is solar power the next big thing? But wait a minute the sun sets periodically ... so we need batteries ... so we need lithium (or something else) ... so it is not really free. Is real estate in America cheap or is there too much of it?

The ambivalence of the markets and the lack of a theme or a trend or a bull market anywhere in the world is jarring. The deafening silence is making people uncomfortable because no one knows where they are going to make money. In my view this Full Reset is refreshing and very exciting. The flip side of this coin is that we now have no baggage of the past. While we do not know what will be, we are in a place where anything can be. We are at the ground floor of everything. We need to stop looking longingly at the past and need to stop wanting and waiting for the old world order to come back.

This is the time to start with a clean slate and this is the time to become rich.

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