If you get a chance, we think Martin Wolfe’s piece in the FT today is worth the read, as it compares where we are in this global recession relative to where we were this time during the great depression.  I like the part above we used in Quotable:

“The policy response has been massive. But those sure we are at the beginning of a robust private sector-led recovery are almost certainly deluded.”

Delusion has always been part of the market process.  It always will be.  And it’s why trying to find the perfect trading algorithm is a long journey with no destination in site.

Delusions are created by feedback loops of false rationales.  False rationales flourish like green shoots, popping up everywhere thanks to our belief that data being streamed at us from every imaginable angle throughout the day actually makes us more knowledgeable.  And of course this belief we are more knowledgeable adds to our hubris, and our hubris breeds false rationales. Price validates said rationale. 

Put another way, by Charles Mackay, a man who wrote a book about delusion, Extraordinary Popular Delusions and the Madness of Crowds,

“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one”

The question going forward:  Is the idea BRICs (Brazil, Russia, India, and China), which are primarily export-driven economies, can generate enough demand to carry the globe out of the morass a popular delusion validated by price action alone?

Looking at the price action in comodols (that’s elevated forex trader lingo that means commodity dollars; you know you’re in the club when you can use words like that) and oil of late kind of suggests to us that just maybe some of the herd is starting “recover their senses slowly.”

To suggest oil goes from $30 to $72.50 in four months sounds delusional; but I guess no more delusional than oil going to $147 a barrel losing all ties to a reality bite that says ultimately supply and demand drive oil in the end.  A lesson seemingly lost already. 

So, we watch oil again to find out if it and its currency brethren are about to tumble off the BRIC wall. 

Jack Crooks
Black Swan Capital LLC
www.blackswantrading.com