Why does the stock market keep rising when America goes up in flames?

While, as our read­ers are aware,1 we derived from recent stock mar­ket micro behav­ior that there was a sig­nif­i­cant risk for a fur­ther stock mar­ket melt-up (and since we pub­lished our post, the S&P 500 is up more than three per­cent once again), this addi­tion­al ascent seems, on the face of it, lit­tle less than “sur­pris­ing” giv­en that news head­lines are dom­i­nat­ed by vio­lent unrest not only in the United States but around the world.

Is appears lit­tle dared to note that the direc­tion of the vio­lence goes, in some ways at least, against the rule of law, specif­i­cal­ly as one promi­nent demand by pro­test­ers, already start­ing to be heed­ed in part by pub­lic insti­tu­tions, is to “defund the police”.2

The rule of law, accord­ing to the log­ic of the mat­ter, is an essen­tial require­ment for attract­ing and enabling invest­ments, as invest­ments require the abil­i­ty to plan far into the future. Productivity gains and with them an increase both in cor­po­rate prof­its as well as in the aver­age stan­dard of liv­ing require invest­ments. So why would the stock mar­ket rise in the face of efforts to under­mine invest­ments, pro­duc­tiv­i­ty, prof­its and over­all soci­etal wealth?

Possibly, just pos­si­bly, because those risk­ing their own mon­ey in finan­cial mar­kets (need to) try to incor­po­rate as much dis­persed pieces of crit­i­cal infor­ma­tion as at all pos­si­ble in a log­i­cal­ly con­sis­tent man­ner – the tra­di­tion­al mean­ing of “to spec­u­late” – in order to make prof­itable deci­sions. And maybe a slight major­i­ty of finan­cial mar­ket par­tic­i­pants has tak­en notice of research show­ing that “Extreme protest actions reduce pop­u­lar sup­port for social move­ments.”3

Investors might “spec­u­late” that the more vio­lent the protests tar­get­ing – to some extent at least – the rule of law, the less like­ly it may become that the Republican pres­i­den­tial can­di­date who appears to have said that he “wants law and order” will lose his bid for reelec­tion in November. This may appear to be “thought around two cor­ners” if you will, but sci­ence always needs to ask for expla­na­tions for observed phe­nom­e­na. Investors typ­i­cal­ly hate uncer­tain­ty and, there­fore, unrest. But as is so often the case, the rea­son­able answer to a ques­tion may once again not be one of “either/or” but rather of “how much”, may hinge on the log­i­cal cat­e­go­ry of mea­sure. Chaotic sys­tems such as those gov­erned by mass psy­chol­o­gy do not behave in lin­ear ways but promi­nent­ly exhib­it the core con­stituent of actu­al log­ic: the (often sud­den) change of a giv­en qual­i­ty, medi­at­ed by mea­sure, into its (own) opposite.

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  1. https://loico.com/unprecedented-methodology-of-analysis/[]
  2. https://edition.cnn.com/videos/us/2020/06/07/minneapolis-city-council-intent-to-disband-police-department-nr-vpx.cnn[]
  3. https://psycnet.apa.org/record/2020-02398-001[]
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Logic is all about relating individual pieces of information in a consistent way. “Consistent” means non-contradictory. An apparent tendency of two pieces of information to appear inconsistent calls for express differentiating clarification, with the logically required depth of differentiating discussion depending on the extent to which both pieces of information appear similar.
We had expressed ourselves confident to be able to predict the outcome of the 2020 US presidential election with a high degree of confidence based on financial market behavior. What we figured out – with the highest degree of confidence – was that we were maximally uncertain about the outcome (keeping us in silent consternation). Which in hindsight would appear exactly as the correct assessment to have been made.

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Logic is all about relating individual pieces of information in a consistent way. “Consistent” means non-contradictory. An apparent tendency of two pieces of information to appear inconsistent calls for express differentiating clarification, with the logically required depth of differentiating discussion depending on the extent to which both pieces of information appear similar.
We had expressed ourselves confident to be able to predict the outcome of the 2020 US presidential election with a high degree of confidence based on financial market behavior. What we figured out – with the highest degree of confidence – was that we were maximally uncertain about the outcome (keeping us in silent consternation). Which in hindsight would appear exactly as the correct assessment to have been made.
An Egyptian man takes a hostage at knifepoint in the Milan cathedral, threatening to slit his victim’s throat. A once reputable Italian paper tells its readers that police “convinced him to lay down his weapon and release the hostage”, when in fact, for everyone to see on video, police had to forcefully overwhelm him. The full and unredacted video, in turn, explodes on social media.