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Progress in Ukraine and perhaps Greece?

Merkel, Hollande, Poroshenko, and Putin signed some documents in Minsk, the Minsk 2.0 ceasefire, which should come to force on Saturday (mid)night. After some doubts, the Novorussian Armed Forces seem ready to respect it, and so should Yatsenyuk's government.

However, Dmitry Yaroš just announced that the Right Sector will keep on fighting after Saturday night, anyway. I guess that NAF will defend itself and if the Right Sector will be the only foe fighting NAF, I would bet that the Right Sector might be neutralized rather easily. We will see what will happen.

On Tuesday, I wrote a text on Greece and Ukraine. Things look somewhat rosier now, three days later. The world markets have jumped – thanks to the Minsk 2.0 agreement but also partly due to good economic news from Germany and the EU in general. (Sub-percent deflation in Germany really, really didn't hurt anyone or anything; it's a good thing.) Dow was back above 18,000 and close to the all-time record, DAX in Germany jumped above 11,000 for the first time in the history, S&P set a new record above 2,000, and NASDAQ is back to levels approaching 5,000 last seen in 2000, before the dotcom bubble burst.

This excitement may be exaggerated because it isn't necessarily the case that Ukraine will be doing fine now. The long-term conflict hasn't really been solved yet – to solve the main long-term problem, America must recognize that its sphere of influence or NATO simply can't expand this close to Russia. And concerning Greece, the progress has been negative.

As I expected, there has been no Greek-European deal on Wednesday, on the first crucial meeting. I am not certain about it but I expect no deal next Monday, either. The gap between the two sides seems too deep. That could mean that the ECB funding will stop on that day, according to an ultimatum. No new funding from next Tuesday. However, ECB preemptively pumped €5 billion of extra cash to Greek banks today.

That extra cash could mean that Greece may postpone its financial collapse by many months. Meanwhile, it may try to find new sponsors in the U.S., China, Russia, or among the extraterrestrial aliens who may be ultimately more likely to fund their wonderful ultracommunist experiment.

Concerning the world markets, I am rather impressed how calm they are. Two or three years ago, I still had a feeling that all the prices and stocks were driven by irrational people who read tendentious scary stories in the media. I no longer have the feeling today. It looks like the market realizes that this event or another event isn't a big deal for most stocks or currencies, and so on.

Well, it's plausible that most of the small investors and similar folks are still irrational. But the hedge funds and others may have restored the efficiency in the markets. Please, I don't want to be proven wrong soon! ;-) So if some stocks are being hysterically sold by lots of emotional and irrational small investors, even though there is no good reason for their price to get down, it's plausible that the hedge funds or someone else immediately exploits the opportunity to buy at a discount.

Thanks to the hedge funds and similar traders, the market prices aren't a simple weighted average of the opinion of investors and traders. If a hedge fund is convinced that everyone else is wrong, it may decide to completely compensate all their effect on the price!

But it's also possible that nothing like that is needed for an explanation of the different behavior now and 2-3 years ago. After all, even the media no longer seem hysterical about this particular "threat to the world economy".

My main point is the same one that Standard and Poor's announced on Wednesday. The risk of contagion from Greece is low. The negotiations between Greece on one side; and Germany, rest of the eurozone, rest of the EU, IMF, and ECB on the other side are probably only deciding about the future of Greece (and of course, about the indestructibility of the Eurozone – but that's not a big deal). They are not deciding about the future of the world and the markets began to understand this point.

Economics is a fuzzy social science affected by human moods and idiosyncrasies which is why it may be affected by self-fulfilling prophesies. If most people believed that the contagion risk were high (like they did years ago), they could immediately start to hurt the price of all other "potentially risky" assets such as the bonds of other PIIGS or even FIPIGS countries and almost all emerging-market stocks, among others. And by doing so, they could cause real problems to these countries and companies etc.

So what investors believe actually does help to determine what will happen! And irrational beliefs may do lots of harm that wouldn't occur otherwise. But my feeling is that these irrational fears have largely evaporated.

It's popular (or it was popular?) among economists to talk about the domino effect. Even e.g. Václav Klaus would like to talk about it. I think that this effect is wildly overestimated and it's a part of some collectivist ideology – and even transnational collectivist ideologies whose goal is huge redistribution at all levels. All of us depend on everyone else, the story goes, so we effectively share everything and we must help everyone else to avoid a crisis affecting us as well.

But that's nonsense. It's very important for the functionality of the human society that people, companies, and nations should be responsible for their fate in general and for their finances in particular. Sometimes, problems of a particular company or country may affect its business partners. But the effect on the business partners is usually much weaker because the troubled subject is usually not the only partner – or the only possible partner. And the affect on the partners of partners is even smaller and may be pretty much neglected.

If you get e.g. from Greece to some really generic people in Europe outside Greece, well, their assets contain (much) less than 1% of those linked to Greece (Greece's economy is 1% of the EU and thanks to Greece's being a largely isolated land, this still massively overstates how many Greek assets and contracts exist outside Greece), so their loss if Greece were erased from the map of Earth would be (much) less than 1%, too. That's why it would be irrational for the stock indexes in other countries to drop by many percent or even 10% or 20% just because a meteoroid (called Syriza) plans to turn Greece (but no one else) into one big crater. It's sad for this cradle of the Western civilization but it's largely inconsequential for everyone else.

Concerning the stocks that rose in recent two days, I think that people should be led to understand the correlation of this "purely financial" dynamics with the observation that "the world became a somewhat better place". The rise of markets and the improvements of the world are not "quite" the same thing but they are rather similar things. They are strongly positively correlated.

If people were owning many more stocks from various other countries and regions in the world (and I mean for them to be long, not short), I believe that the world would be a much more peaceful place because people would simply enjoy (and they would be motivated to enjoy) more if someone else is doing fine. I am surely not ultrarich etc. but I do own something linked to the value of stocks of very many types and associated with very many regions, and so should many more people in the world.

That's my recipe for the world peace. Now follow me and feel free to recommend me for the Nobel peace prize, too. ;-)

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snail feedback (11) :

reader BobSykes said...

The most interesting thing about Minsk 2 is that both the US and UK were excluded from the talks. This is the first time the UK has been excluded from European security negotiations since the Napoleonic wars and Westphalia. The US hasn't been excluded since 1945 and Yalta.

The result is that Germany, along with its French lapdog, is now the European master. NATO is greatly diminished. It won't go away because of the symbolics of it, but it no longer really matters. The EU, as always, is a German colony from which Germany extracts wealth.

Germany's true and only negotiating partner is Russia. The two of them will guide European history for the foreseeable future. It took a hundred years, two world wars and a cold war. Bismarck's mission is accomplished.

reader Nobody said...

Germany is a master? It's a US puppet along with UK and most of the Europe since WW2.
As Nuland said, "Fuck the EU",thats pretty much describes EU influence and position nowadays.
Ukrainian crisis will end only then US stop it, but peace is obviously not in their interests. It's a nice tool to punish Russia, break their ties with Europe and weaken Europe itself.
War gives so much benefits ( US effectively uses it during last century), so only idiot will not consider that as a viable option

reader Luboš Motl said...

Dear Bob, the U.S. haven't participated because

1) their establishment's views are clearly not a path to peace, and the majorities of all the countries around this civil war obviously prefer peace, and

2) the U.S. has simply nothing to do with this conflict and it doesn't understand any of the important issues, either.

NATO has nothing to do with the conflict, either. It's a civil war in a NATO non-member country which has belonged to the Russian sphere of influence for centuries and which is bordered by the EU on the other side.

It is true that some powerful Americans de facto *started* this civil war but they didn't do it on behalf of NATO, and this very bad influence doesn't give them any credentials to influence the negotiations.

You implicitly assume that the U.S. should decide about the political outcomes of talks at *every* corner of the world. Sorry, I find this unacceptable.

The U.K. haven't participated, either, because they're very far from the conflict, too.

It is not true that all similar negotiations contained the U.K. and the U.S. For example, when Czechoslovakia was occupied in 1968, the U.S. and the U.K. didn't help to decide what was going on, either.

reader Luboš Motl said...

Germany may have been a geopolitical puppet of the U.S. since 1945 until recently but it seems conceivable to me that this civil war is an event that may establish some independence and assertiveness in this most important country of current Europe.

So fuck [the] Victoria Nuland. She is clearly a nasty bitch who wants to push her prick everywhere but that doesn't mean that she will be allowed to do so in the future.

reader MikeNov said...

5 billion to Greece doesn't sound like no deal.

reader Luboš Motl said...

Hi Mike, this EUR 5 billion has nothing to do with the ongoing negotiations.

reader LM said...

You are taking into account the linkage of water vapour and Co2? I mean, it's that linkage that causes co2 to be so - allegedly - potent. Water Vapour is obviously vastly more potent than co2. If weren't for the fact Water Vapour leaves open a significant frequency 'window' (i.e. does not absorb), water vapour would cause a runaway warming effect. The oceans would've boiled away eons ago.
Co2 is a very weak trace gas of a few hundred ppm. it's absorption band is really narrow - a fraction of water vapour. But that narrow frequency band that co2 absorbs in, is guess where? In that very window that water vapour does not absorb. Co2 goes a long way to blocking that window (but doesn't).
It's for this reason Co2 and Water Vapour are strongly linked. If a region is dry Co2 will be much less potent. if a region is steamy, co2 will be very potent. There's a threshold that gets tripped all the time in localities, that sees co2 form a feedback with water vapour, that sees more water vapour, so more potent co2 so more water vapour.
Because of water vapour, co2 is - allegedly - definitive at the other end of things, involving insufficient or zero or thereabouts atmospheric co2. The reason for this is that water vapour is not self propagating. The frequency window left wide open, prevent water vapour from capturing enough heat, that the total water vapour the next day will be the same as today or more. It will be the same or less much more often.
What that means is if there were no co2 in the atmosphere, water vapour would progressively reduce and eventually vanish, and the planet would freeze over permanently.
This much...doesn't say anything alarmist, or take sides in this or that argument. This is the physics part of things. Hard physics. Which i'm sure you know or can reason. But it just wasn't clear that you were building this into your reasoning, hence I have tried my very best to be a good girl and help you.
I'm really only hanging around to irritate and be mean to Lubos a little, because I have a crush

reader LM said...

"Your humble correspondent will spend some extra time with the ideas above, anyway. ;-) " - sounds like their idea began to grow on you there's nothing wrong with their idea, other than it's probably wrong.
But what if it leads to hard predictions Lubos? I think that's what really worries you. Because you know String Theory is vulnerable while it doesn't predict. A silly little theory like theirs with a couple of surprising predictions that go on to be confirmed...I think you know that's all it will take.

reader TTA TTA said...

It is wrong to attack an author of a published paper on the
basis of citations. Many scientific works received no
recognition till long after they were published. By the way, with
more than maybe 10,000 citations, has Maldacena's seminal
work given any verifiable results ? Anything that might
actually be tested ? oh of course that is not important
for modern day String Theorists ? maybe you could educate
your ignorant audience on that.

It is also wrong to attack a published paper in a public forum
based on things that YOU perceive as right or wrong. Why
dont you come up with some scientific arguments rather
than this mud slinging just becos the authors do not belong
to some country of your choice.

"I think it's unlikely – the probability is below 1%" -- this is
not good. maybe you could be more specific on what
exactly is the problem with the paper. yes it is speculative
to an extent, but it does give you right numbers. The day you
String Theorists start suspecting numbers, it is a sad day for

reader Luboš Motl said...

Hi, talkative crackpot,

most of the 10,000 papers citing Maldacena's famous work contain nothing else than a verification of his results.


reader Void said...

I was looking forward to your delicious diss on this matter but I have to say I am slightly disappointed how the focus of 1-6 is on the "science politics" side of things rather than on the conceptual faults of the paper.

The whole point is that the authors hide the nonsensishness of their whole argumentation into references to their previous work. One is somehow lead to the illusion that everything they are doing has a solid foundation somewhere in the refs but they are actually just throwing around random mathematics with no conception of the physics behind it.

The only physical interpretation I see in the paper is: "We put a single quantum particle into the universe, it moves along a Bohmian trajectory. Cosmic expansion is *classically* driven by it's wave-function density. (!!!) Abrakadabra! Bohmian trajectories never cross. Abrakadabra! (Super-chutzpah-link) This explains why the cosmology coupled to the single-particle wavefunction has no initial singularity, even though there is no feedback of the particles on the wavefunction." They could maybe provide an argumentation why a non-interacting Bose condensate should be guided by such a wave etc. But they do not. And, as we all know, the approximation of non-interaction breaks down eventually.