True, but reflexivity also talks about perception of reality and how that can be at odds with the fundamentals and how the greatest trading opportunities lie at the point where perception and reality diverge. We had that in 2007 where perception of reality diverged from what was really going on in the economy and I would argue that all this talk of green shoots is more of the same. A bounce of producer economic activity caused by the relative unfreezing of the credit markets from what was an economic standstill in late 08 of both production and more importantly trade, coupled with the massive amount of government stimulus and central bank easing, does not appear to be sustainable to me. While producers have been able to bounce back from the dive they took off the cliff with renewed access to credit and most importantly Letters of credit for trade flow to restart, consumer demand has continued to fall off and with the housing and unemployment data I don't see that turning around anytime soon. In short what I think is going on is that people are mistaking this bounce in producer activity for sustainable economic activity and extrapolating that to an economic recovery disregarding the consumer demand factor in the equation. Unfortunately if the consumer can't participate there will be no recovery and this uptick in producer activity will level off to meet still falling consumer demand. The main point is that I don't expect consumer demand to stop falling for at least a year maybe more and the ramifications of that will hit producers hard with many not being able to survive. The risk to the financial system seems to have been averted but the risk of continued damage to earnings and viability of large sectors of the economy is still very high.
I agree w/all of that. However, my conclusion would be to just treat markets as "normal", if that makes any sense. Some will go up, some will go down, some will flatline. The end of the world trade - short financials, short commodities/oil, short GBP, long gov't debt - is over.
I agree, from a trading perspective it makes a lot of sense to look at things in that way so that one's macro bias doesn't overwhelm other aspects of trade management especially as timing on this next leg down will be as tricky as it was for the 1st leg down (sitting awash with EEM puts for the later half of 2007, while eventually vindicated, is not an experience I am keen to repeat any time soon!)
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