‘It’s Going To End Badly’: Dissensus And The Frozen Deer

By Heisenberg

Think of it like you have your two Greek gods, the water and the sun, fighting each other and right now it’s not going anywhere.

It’s going to end badly. We’re about ready to make a big move that will happen by the end of this year.

That rather amusing quote is from Andrew Brenner, head of international fixed income at Natalliance Securities in New York. It appears at the end of a recent piece by Bloomberg’s quant queen and New York’s “best Burger”, Dani.

The thrust of the piece will be familiar to Heisenberg readers. Here’s Burger:

With Catalan separatists raging, a cloudy outlook for U.S. tax overhaul and all eyes on who President Donald Trump will nominate to head the Federal Reserve, there are a lot of risks out there for investors. Or at least you’d think there were.

Despite the headlines, financial markets are experiencing unprecedented calm and unprecedented gains.

Yes, “unprecedented calm” against a geopolitical and policy backdrop that is anything but serene. We revisited the disconnect between policy uncertainty and market-based measures of volatility on Sunday in “The Great Disconnect: 5 Reasons Why Volatility Is Detached From ‘Chaotic Uncertainty.” Here’s what that disconnect looks like:


The reason we wanted to bring this up again on Monday (well, other than to talk about one of our favorite subjects and plug Dani’s latest post) is because of the point the Bloomberg piece makes about dissensus. Here’s another excerpt:

Quarterly trading volume in the largest exchange-traded fund tracking the S&P 500 fell below $1 trillion for the first time since 2007, according to Bloomberg Intelligence’s Eric Balchunas. ETF trading typically picks up during major macro events, as investors hedge and move positions with broad exposures. During the financial crisis, ETFs represented about 50 percent of total U.S. equity trading volume, compared with about 30 percent in the first half of this year, data compiled by JPMorgan Chase & Co. show.


Looking at the tumultuous events going on across the globe, and trying to calculate the unknown affects of the Fed’s unwinding and the European Central Bank’s tapering, has investors paralyzed.

Right. Investors are “paralyzed.” Does that sound familiar? It should. Let’s go to the source of all things wise, Deutsche Bank’s Kocic:

Dissensus has emerged as a new paradigm – an absolute inability to form consensus across variety of contexts, accompanied with an onset of a breakdown of conventional frames of reference. So, what does one do when no decision can be made? Well, one waits. As a consequence, the market flows are slowing down and vol sellers emerging. This is where the things begin to develop ambiguous overtones.

It’s dissensus. And it’s vol. selling as the offloading of “waiting time.” And it underscores what we said earlier this year about the extent to which the “deer in headlights” analogy for tumultuous markets is often misappropriated. We’ll leave with our thoughts on that:

People often use the “deer in headlights” phenomenon as an analogy for tumultuous markets.

That’s probably a misappropriation.

After all, a deer that’s caught in headlights is anything but erratic. It’s frozen. Unable to react or, more colloquially, unable to get the hell out of the way.

Here’s David C. Yancy, a deer biologist with the Kentucky Department of Fish and Wildlife Resources to explain why this happens:

  • Deer are crepuscular. Their activity peaks within an hour or so on either side of sunrise and sunset, so their vision is optimized for very low light. When a headlight beam strikes eyes that are fully dilated to capture as much light as possible, deer cannot see at all, and they freeze until the eyes can adjust.
  • They don’t know what to do, so they do nothing.

Seen in that light (get it?), the current environment, characterized as it is by competing narratives, a manic news cycle, and a fraught geopolitical backdrop, has rendered markets incapable of knowing what to do. So, markets do nothing.

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