There are a lot of theories regarding why Economics is considered to be the dismal science. Some attribute the quotation to Thomas Malthus, who being an exceptional economist (and noteable perma-bear), and not such an exceptional scientist, surmised that the human population would hit a wall and did not account for the unprecedented economic growth borne by technological progress in the years to come.  Others attribute the quotation to various other economists.

I personally find Economics to be particularly dismal for a number of reasons:

  • It isn’t always scientific- it’s fraught with unprovable models, which are only situationally applicable.
  • It tends to reduce humans down to numbers and statistics. This isn’t incorrect in purely logic-based terms, but it negates the moral element of human existence.
  • Perhaps the most dismal thing about economics (and finance) to me, is that I know that investing in financial markets is often (but not always) a zero sum game. That is to say, if I am right about something and I win, there are probably at least 10 or 15 people on the losing side of the trade.  In that sense, finance isn’t really the sort of thing you want to be right in.  Even good news is bad news.

About 3.5 hours ago I posted the following:

“The Emerging Market currencies are bound to be a shitshow over coming months.  More devaluation likely. Expect pegs to uncouple as regional cash reserves get burned through at a record pace on account of the commodity slump.”

90 minutes later the FT published an article regarding the Saudi Riyal developing signs of stress as a result of their US Dollar peg coming under pressure. The Hong Kong Dollar also seems to be developing signs of stress against the USD.  Sadly, the national governments (and thus the local citizens) are on the other sides of these trades if the pegs break. Speculators will be blamed in the media as politicians love to shift blame, but ultimately this is the market mechanism crushing unsustainable currency policies.  If these pegs break the US Dollar should see significant appreciation, and the reverse would be true of the SAR and HKD, note that a rapidly strengthening dollar due to breaking pegs would likely see a domino effect as other remaining pegs start to topple.

A full list of countries with USD pegged currencies that have populations over 1 million (as of February 2015) are as follows:

Bahrain, Cuba, Dijbouti, Eritrea, Hong Kong, Jordan, Lebanon, Oman, Panama, Qatar, Saudi Arabia, United Arab Emirates and Venezuela.

Being right in matters of Financial Markets is never cause for celebration, especially these days.   As Voltaire once famously quipped, “It is dangerous to be right in matters where established men are wrong.”

Maybe that’s why many Economists seem to just talk the party line.

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