Markets Have Entered the Multiverse of Madness

Movie fans will know that the new phase of the Marvel Cinematic Universe recently kicked off with Doctor Strange in the Multiverse of Madness. In a sign of cinema-goers returning, the film grossed $187 million in its opening weekend. That is the 11th highest in history.

The film introduces the idea of the multiverse – alternate realities where events have unfolded differently. So, in one universe, Dr Strange could be evil, and in another, he could be good. Or in one, a war has started while in another, the war was averted.

While the idea may sound outlandish, it has some grounding in physics. More importantly, the world today could be seen as breaking into a multiverse. Bear with me.

In March 2020, the COVID pandemic struck the world, and all markets were in the pandemic universe. We knew what to watch (cases vs vaccines) and how it would impact markets (risk on, risk off).

But this year all that has changed. Instead, we have entered a multiverse with parallel realities running together. These universes are as follows.

1. COVID Is Still a Health Crisis
   
   China is experiencing that universe. They have lockdowns. Domestic demand has collapsed. Meanwhile, the rest of the world has re-opened. In the West, it is hard to even find people wearing masks.
   
2. Rampant Inflation
   
   The US is experiencing this universe. Inflation there is the highest since the early 1980s. The Fed has had its Volcker conversion and is charging forward with hikes even if it leads to recession.
   
3. War
   
   Europe has a war with Russia invading Ukraine. Germany is torn between cutting off energy imports from Russia to help Ukraine or maintaining them to avert a recession.
   
4. The Tech Utopia Is Turning Into a Dystopia
   
   Crypto is its own universe where new institutions – whether related to governance or finance – were built from scratch. The idea was for these to free us from the inequity and corruption of the traditional world. But now crypto prices are falling, and stablecoins are de-pegging. It looks like where humans go, their weakness follows.

These universes could easily collide with another universe. If they do, there could be serious turmoil. As an investor, what can we do? The simplest answer is not to try to traverse across universes. Instead, stay put and be in cash.

Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-markets research.

(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)