The Millennium Bridge as a metaphor for Trump

In the January 15th, 2010 edition of Notes from a Small Island I used London’s Millennium Bridge to help my investor clients visualise the obvious, growing (de)fault lines within EMU.

The Millennium Bridge was opened by Her Late Majesty The Queen on June 10th, 2000, and it was soon apparent there was a problem with the bridge’s engineering.

Arup - the engineers - conducted a programme of research: this research indicated that the swaying of the new bridge was generated by the sideways loads pedestrians generated when walking.

Chance correlation of our footsteps when we walk in a crowd generated slight sideways movements of the bridge. It then became more comfortable for people to walk in synchronisation with the bridge movement.

This instinctive behaviour ensures the sideways forces we exert match the resonant frequency of the bridge and are timed to increase with the motion of the bridge.

As the magnitude of the motion increases, the total sideways forces increases and we become more correlated: Arup named this process synchronous lateral excitation.

Arup’s research programme showed the effect is sudden, not gradual.

It does not show as small movements with a few people, gradually building up as people are added.

Instead, it takes a critical number of people for a bridge to sway - to succumb to synchronous lateral excitation.

Until that critical number is reached, there is no evidence of the effect.

So what?

Trump is the personification of synchronous lateral excitation: he is a multi-dimensional gamma agent, and he’s just getting started.

Happily, some investors were well prepared for this; many, it seems, are not.

The essence of modern financial markets is the assumption that realised volatility and realised, cross-asset correlation are forecastable, predictable, and generally low and stable.

On the back of that assumption enormous, high-velocity, heretofore immensely successful risk engines and portfolios have been built: but what happens when the largest driver of markets (e.g. tariffs, defence spending) becomes something that most market participants have no experience of?

To state what should now be obvious: of course, US stocks are lower and credit spreads are a bit wider - but there is no sign of panic. Nobody is tripping over themselves to own wings or tail options in US equities.

Nor are they falling over themselves to buy credit protection, although - this ought be obvious too - the inability of the dollar to bounce during this turbulence is causing a lot of large pools of global capital to examine their FX hedging policy.

The absence of panic in markets tells us the working assumption is that realised volatility and cross-asset regimes will remain predictably low and stable.

Perhaps they will remain so: however, no matter what the administration claims, I have been reminding my clients for a while now that consumption taxes, such as tariffs, either reduce real income through inflation (which is the exact opposite of what Trump seems to want for American workers) - or reduce corporate profits via higher inputs costs.

Amidst all the bravado (c.f. Lutnick on everything), the essence of MAGA is a transfer of real income from white collar and professional workers to blue collar workers.

For society, a good thing.

For US corporate profits, not so much.

Somewhat higher realised volatility and somewhat higher higher cross-asset correlations aside, I wonder whether the reason US equity markets are struggling is because we are slowly reverting from a momentum-driven voting machine to an earnings driven weighing machine?

Some would argue the slow reversion to Graham’s weighing machine is overdue: it is not the end of the world, but for the unprepared investor, it may feel like it.

Our primary objective during this transition is unchanged: to remain calm, confident, energised, focussed, knowledgeable, anticipatory and always in control.

JA

Mapping reality since 1992. Advising the world’s most powerful pools of capital since 1999. Discover why they trust him: https://www.aitkenadvisors.com/contact

In the January 15th, 2010 edition of Notes from a Small Island I used London’s Millennium Bridge to help my investor clients visualise the obvious, growing (de)fault lines within EMU.

The Millennium Bridge was opened by Her Late Majesty The Queen on June 10th, 2000, and it was soon apparent there was a problem with the bridge’s engineering.

Arup - the engineers - conducted a programme of research: this research indicated that the swaying of the new bridge was generated by the sideways loads pedestrians generated when walking.

Chance correlation of our footsteps when we walk in a crowd generated slight sideways movements of the bridge. It then became more comfortable for people to walk in synchronisation with the bridge movement.

This instinctive behaviour ensures the sideways forces we exert match the resonant frequency of the bridge and are timed to increase with the motion of the bridge.

As the magnitude of the motion increases, the total sideways forces increases and we become more correlated: Arup named this process synchronous lateral excitation.

Arup’s research programme showed the effect is sudden, not gradual.

It does not show as small movements with a few people, gradually building up as people are added.

Instead, it takes a critical number of people for a bridge to sway - to succumb to synchronous lateral excitation.

Until that critical number is reached, there is no evidence of the effect.

So what?

Trump is the personification of synchronous lateral excitation: he is a multi-dimensional gamma agent, and he’s just getting started.

Happily, some investors were well prepared for this; many, it seems, are not.

The essence of modern financial markets is the assumption that realised volatility and realised, cross-asset correlation are forecastable, predictable, and generally low and stable.

On the back of that assumption enormous, high-velocity, heretofore immensely successful risk engines and portfolios have been built: but what happens when the largest driver of markets (e.g. tariffs, defence spending) becomes something that most market participants have no experience of?

To state what should now be obvious: of course, US stocks are lower and credit spreads are a bit wider - but there is no sign of panic. Nobody is tripping over themselves to own wings or tail options in US equities.

Nor are they falling over themselves to buy credit protection, although - this ought be obvious too - the inability of the dollar to bounce during this turbulence is causing a lot of large pools of global capital to examine their FX hedging policy.

The absence of panic in markets tells us the working assumption is that realised volatility and cross-asset regimes will remain predictably low and stable.

Perhaps they will remain so: however, no matter what the administration claims, I have been reminding my clients for a while now that consumption taxes, such as tariffs, either reduce real income through inflation (which is the exact opposite of what Trump seems to want for American workers) - or reduce corporate profits via higher inputs costs.

Amidst all the bravado (c.f. Lutnick on everything), the essence of MAGA is a transfer of real income from white collar and professional workers to blue collar workers.

For society, a good thing.

For US corporate profits, not so much.

Somewhat higher realised volatility and somewhat higher higher cross-asset correlations aside, I wonder whether the reason US equity markets are struggling is because we are slowly reverting from a momentum-driven voting machine to an earnings driven weighing machine?

Some would argue the slow reversion to Graham’s weighing machine is overdue: it is not the end of the world, but for the unprepared investor, it may feel like it.

Our primary objective during this transition is unchanged: to remain calm, confident, energised, focussed, knowledgeable, anticipatory and always in control.

JA

Mapping reality since 1992. Advising the world’s most powerful pools of capital since 1999. Discover why they trust him: https://www.aitkenadvisors.com/contact

In the January 15th, 2010 edition of Notes from a Small Island I used London’s Millennium Bridge to help my investor clients visualise the obvious, growing (de)fault lines within EMU.

The Millennium Bridge was opened by Her Late Majesty The Queen on June 10th, 2000, and it was soon apparent there was a problem with the bridge’s engineering.

Arup - the engineers - conducted a programme of research: this research indicated that the swaying of the new bridge was generated by the sideways loads pedestrians generated when walking.

Chance correlation of our footsteps when we walk in a crowd generated slight sideways movements of the bridge. It then became more comfortable for people to walk in synchronisation with the bridge movement.

This instinctive behaviour ensures the sideways forces we exert match the resonant frequency of the bridge and are timed to increase with the motion of the bridge.

As the magnitude of the motion increases, the total sideways forces increases and we become more correlated: Arup named this process synchronous lateral excitation.

Arup’s research programme showed the effect is sudden, not gradual.

It does not show as small movements with a few people, gradually building up as people are added.

Instead, it takes a critical number of people for a bridge to sway - to succumb to synchronous lateral excitation.

Until that critical number is reached, there is no evidence of the effect.

So what?

Trump is the personification of synchronous lateral excitation: he is a multi-dimensional gamma agent, and he’s just getting started.

Happily, some investors were well prepared for this; many, it seems, are not.

The essence of modern financial markets is the assumption that realised volatility and realised, cross-asset correlation are forecastable, predictable, and generally low and stable.

On the back of that assumption enormous, high-velocity, heretofore immensely successful risk engines and portfolios have been built: but what happens when the largest driver of markets (e.g. tariffs, defence spending) becomes something that most market participants have no experience of?

To state what should now be obvious: of course, US stocks are lower and credit spreads are a bit wider - but there is no sign of panic. Nobody is tripping over themselves to own wings or tail options in US equities.

Nor are they falling over themselves to buy credit protection, although - this ought be obvious too - the inability of the dollar to bounce during this turbulence is causing a lot of large pools of global capital to examine their FX hedging policy.

The absence of panic in markets tells us the working assumption is that realised volatility and cross-asset regimes will remain predictably low and stable.

Perhaps they will remain so: however, no matter what the administration claims, I have been reminding my clients for a while now that consumption taxes, such as tariffs, either reduce real income through inflation (which is the exact opposite of what Trump seems to want for American workers) - or reduce corporate profits via higher inputs costs.

Amidst all the bravado (c.f. Lutnick on everything), the essence of MAGA is a transfer of real income from white collar and professional workers to blue collar workers.

For society, a good thing.

For US corporate profits, not so much.

Somewhat higher realised volatility and somewhat higher higher cross-asset correlations aside, I wonder whether the reason US equity markets are struggling is because we are slowly reverting from a momentum-driven voting machine to an earnings driven weighing machine?

Some would argue the slow reversion to Graham’s weighing machine is overdue: it is not the end of the world, but for the unprepared investor, it may feel like it.

Our primary objective during this transition is unchanged: to remain calm, confident, energised, focussed, knowledgeable, anticipatory and always in control.

JA

Mapping reality since 1992. Advising the world’s most powerful pools of capital since 1999. Discover why they trust him: https://www.aitkenadvisors.com/contact