Inside Out from Disney is an introductory course in neuroscience and the philosophy of mind disguised as a children's cartoon. You can read in transparency Marvin Minsky's Society of the Mind and the complete works of Antánio Damásio. If for Descartes the primitive passions of the soul (wonder, love, hate, desire, joy, sadness) involve the body only in the initial phase and are then elaborated and controlled by a unitary mind, in the neuroscientist Damásio, who in this is inspired by Spinoza, the dualism between mind and body is abolished. Emotions, perceived and elaborated by the body even before emerging on a conscious level, become central and undermine the primacy that intellect and reason had maintained for centuries in philosophy. If for Minsky there is in any case a meta-program which acts as an office for the coordination of emotions and gives reason now to this now to that (also giving us the illusion of having an ego that decides something) in Inside Out the five emotions (Joy, Sadness, Anger , Loathing, Fear) directly rule eleven-year-old Riley. Seated at the console, they take the commands alternately and without a precise plan. In certain moments the emotions argue with each other, in others one of them imposes itself by arrogance. There is no unitary ego and identity is entrusted to lumps of memories (the Islands of Personality). The emotions of Inside Out are evidently programs that perform precise functions formed during the phylogeny. Joy guarantees happiness, Anger defends against injustice, Disgust and Fear lead to avoid dangers. The function of Sadness is curious and interesting, to which we will return, that is, to make sure that others notice our problems and come to our aid.
The markets, since mid-August, appear governed by pure emotion. This is what happens when the amygdala (the almond that collects sensory stimuli in the brain, compares them with pleasant or painful memories and activates emotional reactions) is overstimulated and irritated, consequently generating panic, aggression, fear of imminent disasters without apparent cause. The reverse occurs when the amygdala is destroyed by trauma or surgically removed and the stimuli are ignored, creating a state of docile calm. The state, so to speak, in which world markets found themselves from the beginning of the year until mid-August (with the sole exception of Europe which has finally landed on Quantitative Easing). Seen from a distance, that of August looks more and more like a panic attack on China, just as panic is the right word to define what happened on some stocks linked to raw materials, on European cars and on American biotechnology. In many cases, fear has been mixed with anger and disgust. She is angry about China, she has always been considered very skilled in managing her economy and suddenly appeared as bungling and amateurish on foreign exchange and the stock market. Anger for the European car, in the spring considered the best sector to ride the new competitiveness of the Eurozone. Self-loathing for filling everyone up with biotech and falling once again into yet another bubble trap. Fear, anger and disgust also characterized the subsequent recovery. There was the fear of the shorts, who had to painfully chase the rebound after overselling (always out of fear). There was anger at overemphasizing the fear sowers (what David Zervos calls the Haters) and lightening it up when it seemed the global positive cycle was going down the drain. Instead, there was little joy and only relief, as few took advantage of the low prices to widen their positions. As for sadness, the second phase of the downturn was full of it, the one following the initial shock. A pleading sadness, addressed to central banks as young Riley's sadness is addressed to parents and the class for help and understanding.
It also seems to us that a fundamental passion was completely missing, which even the screenwriters of Inside Out have forgotten about. Let's talk about what Descartes called desire, ancient and medieval philosophers lust, Freud oral drives and what behavioral finance calls greed, the twin sister of fear. No voice was raised on the lows to say to buy, as had happened in recent years and only those who had previously sold bought, while almost nobody expanded his positions. We read it as a positive sign, because it means that the fear was real and deep. A real stress test, not a game. Moreover, greed was missing in all the upswing following 2008-2009, during which the final buyer, the public, never got carried away by enthusiasm and regularly took advantage of the positive moments to sell shares and redeem funds. The only ones who are greedy, in this historical phase, are the managers of the companies that aggressively go into debt to buy their own shares. For now, fortunately, most buybacks are still made by companies that can afford them. It is too early to say that the phase dominated by emotions is over. In the next two to three weeks we will be deluged with third quarter earnings data. If the stock markets are disappointing, they will weaken again (but without getting too close to the lows of August) to recover anyway in view of the end of the year. If, on the other hand, profits are surprisingly positive, the stock markets will rise slightly, and then fall again in view of the end of the year to accommodate the rise in US rates, which is unavoidable at that point.
One way or another, 2015 will meet its fate as a flat year in America and only moderately positive in Europe and Japan. A destiny that was written from the beginning, since the 30 percent increase in 2014 had appropriated any possible expansion of the multiples and considering that this year's earnings, in America, will be equal to those of the year last. If 2015 ends unchanged, it will also mean that the meta-programme of the central banks is still operating above the impulses and convulsions of the markets, which direct rates and stock exchanges according to macro purposes. Today, as Yellen already said in May, further hikes are useless and potentially dangerous. However, the world is fragile enough to make even free rebates, not motivated by fundamentals, considered inappropriate. And so, seeing that America, Europe and China will end the year with modest differences compared to the initial forecasts, it is better for everyone to stay put.
