Sturm und Drang

For some unexplained reason, I started thinking about Sturm und Drang over the weekend. The  rough English translation of this  German phrase means storm and stress, and has evolved to characterize those situations of a highly volatile nature. The term itself however was  initially used to define a movement  emanating during 17th century Germany in response to the neo-classical periods such as the French enlightenment. If the period leading up to the 1760 was about rational thought and aesthetics, the period from roughly 1760 to 1780 was all about raw emotion. It has been said that while history rarely repeats itself, it does rhyme, one can’t help but wonder if we are entering a new period of  global Sturm und Drang. The emergence of populist strength in a majority of G7 and non-G7 countries is one indication that the promise of hope and change  for the majority of the citizenry has been mostly an illusion. However, for all the storm and stress extant in the real world, the capital markets could not be more unSturm und unDrang.  The financial press seems fixated  on popular measures of volatility such as the VIX and the apparent disconnect between potential market moving events and the flatlining of said measures. We believe however that, as usual, the focus has been on the 1000 foot view of the trees much to the exclusion of the 30,000 foot view of the forest.  The movements by global central banks to solve a whole host of economic problems, typically outside their purview, has led to a massive, deeply ingrained and entrenched global mis-allocation of capital.  The result has been the suspension of “economic reality” as evidenced by: negative real rates of interest, deeply unprofitable industries with unlimited access to capital markets, Governments at both  the Sovereign and State levels operating with no fiscal restraint, etc..  However, while economic reality may have taken a holiday, the basic laws of math and gravity still exist.