Back to the Seventies

Forecasting financial markets is usually a foolhardy exercise.

They are often manipulated over the short term, while external events can land excruciating financial blows for the average investor.

It's often talked about how the modest movements in one sphere can have outsized influences elsewhere. It's known as the Butterfly Effect.

The term is closely associated with the work of mathematician and meteorologist Edward Norton Lorenz. He noted that the butterfly effect is derived from the metaphorical example of the details of a tornado (the exact time of formation, the exact path taken) being influenced by minor perturbations such as a distant butterfly flapping its wings several weeks earlier.

That's what we are experiencing as the world responds to events in Japan and the drums of war.

Regarding the first, the Japanese Central Bank lifted interest rates by 0.25% last week. This was an expensive blow for hedge funds that were used to borrowing Japanese Yen (for next to nothing) and investing in US assets.

It triggered margin calls as hundreds of billions in trades needed to be unwound, hence the sell-off in many markets.

We also learned that Warren Buffet, one of the greatest investors of all time, sold a lot of shares in Bank of America and Apple, building his cash stockpile to more than USD 230 billion.

That suggests he's worried about something!

Then there's the escalating tensions in the Middle East.

Iran is expecting to direct a strike against Israel in the coming days while their proxy terror outfits are already fully engaged in a military assault.

The prospects of growing conflict will cause some risk-off decisions for the institutional investors.

Now comes the dangerous bit(for me, at least): forecasting the future of financial markets.