Change happens at the margin (periphery)…ice doesn't melt from the inside. In the developed world we often don't consider that the margin of an interconnected system is part of the system and that changes at the margin can provoke changes throughout, including the core. And then there are the initial conditions of the complex system which influence the possible paths and outcomes as the system evolves. (future returns)
Consider : valuations, multiple data points, sentiment AND contextualize these initial conditions.
Add apparently insignificant / unconnected change at the margin : Argentina, Turkey, Venezuela, Ukraine, shadow banking in China (trust and wealth management products).
Then think. What possible outcomes could there be? How is our portfolio positioned, does it take into account our ignorance about the future or does reflect overconfidence in our ability to predict uncertain outcomes?
More things can happen then will happen but we can't know a priori, with certainty, what will happen and we shouldn't pretend that we can. What is certain is that we'll create a narrative ex-post that will have explained with precision exactly what has happened.
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