Markets Can Flip In An Instant

Inefficiencies

The more time I spend reading about and participating in financial markets such as the stock or crypto market, it becomes more and more apparent just how sensitive the markets actually are.

With just a word or a rumor here or there, a market can completely pivot the direction that it is moving in. That is the case it seems because of how inefficient they actually are at the core of their nature. Prices are simply the best guess that a supply and demand system can produce. Price is never actually completely equivalent to utility or true value of an underlying asset.

The most baffling aspect of markets to me has been how the voice of the few can overwhelmingly swing the speculative sentiment of the majority.

The Few

There are a few different people in our world that have the sway to dictate the markets. Of course there are whales that could change the flow of markets simply based on their trading activities, but in most instances that has been outlawed by lawmakers.

The real shock to me (and no pun-intended to the markets as well) is when someone like Elon Musk, Jerome Powell or Joe Biden are able to completely flip the market with just one announcement. Of course these are among the world's most influential people for a reason, but we can't deny how terrifying it actually is that a single sentence could make or break the financial future of many investments.

Today for example, there were two different comments made by Joe Biden that changed the trajectory of finance and politics this week.

On the financial side, he announced what seemed to singal the United States walking back some of the tariffs placed on Chinese imports, thus providing a positive economic outlook for risk-assets as supply chain pressure would be eased. At the same time on the political side, Biden admitted that the United States would support Taiwan militarily if China were to ever invade... Pretty much the opposite of a positive progression with China (more towards a provocation of what would hypothetically be the most violent war in world history).

Now I don't expect that single comment to cause world war three, but the power of a single sentence coming from the top world powers is something that carries more weight than anything in world history; especially when you factor in the fact that information is now spread instantly and scrutinized by news outlets and individual viewers alike.

Takeaways

We are living in a disorderly world and attempting to make sense of a mechanism that perfectly highlights the inefficiencies of our reality. I guess the only takeaway I can find is that in the current system you need to be financially prepared for any outcome, because it could become your reality the very next day. There needs to be some sort of risk mitigation in your portfolio planning and a bit of diversification may go a long way when it comes to being ready for a single sentence to flip the direction your portfolio (and life in general) is moving in.

We literally can never predict what will happen next...

Who I am:
My name is Rob and I am a financial analyst with interests in cryptocurrency and blockchain. I have enjoyed my time thus far engaging with Web 3.0 and am looking to continue learning more and sharing what I learn through my experience.