Fynsa
- But mom, I left unannounced because everyone left unannounced.
- Let's see, if one of your friends jumps off the top floor, are you going to do it too?
Surely many of you have heard that phrase from your mothers or fathers when you were younger, or have said it to your children when you see them acting impulsively.. While it often seems like an exaggeration (since one is not an unintelligent automaton), in real life it happens more often than we realize. For example, to cite something recent, remember when at the onset of the pandemic, people ran to supermarkets and grocery stores and depleted stocks of toilet paper? True, in March 2020 we knew very little about the coronavirus, but among the symptoms described by the WHO and the Ministry of Health guidelines, diarrhea did not appear as one of them. Nor was there a global paper shortage on the horizon that could compromise the future supply of this essential element. So, if there was no information suggesting an increase in demand or a contraction in supply, why did people empty the shelves dedicated to this product?
This behavior is known as the "Bandwagon effect" or "herd effect" (or many others out there, in case you've heard of them), and refers to how people follow others without necessarily knowing why they do it. "Maybe they know something I don't," which becomes a reason to follow their actions and not be made to look foolish or uninformed afterwards. This can also be observed in the lines, when many people start doing them without necessarily knowing if it is the one that serves them, just because others who seem to be looking for the same goal, such as getting into the stadium, also do it. Not that it has happened to me, noooo.
Well, since the economy and financial markets are reflections of human action, these phenomena are also noticeable in these areas. Better than me, John Maynard Keynes said it, calling them "animal spirits":
"Even setting aside the instability due to speculation, there is another instability that results from the characteristics of human nature: that much of our positive activities depend more on spontaneous optimism than on mathematical expectation, whether moral, hedonistic, or economic. Perhaps most of our decisions to do something positive, the full consequences of which will be presenting themselves in many days to come, can only be regarded as the result of animal spirits - of a spontaneous spring impelling action in preference to stillness, and not as the consequence of a weighted average of quantitative benefits multiplied by quantitative probabilities."(1)
This type of behavior has been used to explain large stock market movements, variations without a clear sense in the exchange rate, rises in financial asset futures, negative prices for future oil barrels (2), etc., and so on.(2) , etc.
This has also been observed in the local market, very recently, with the price that agents are pricing This has also been observed in the local market,very recently, with the price that agents put on the UF in the future. That is, there is a market in which the future value that the UF could have at a given date is bought and sold. For example, if you believe that inflation in three months is going to be higher than what is determined in the future UF prices, you can buy these UFs and if your expectation comes true, your UFs will be worth more at that moment. The same can be done, but in the opposite case, in case you believe that inflation will be lower. At FYNSA, we have a whole area that is dedicated to this and that allows us in Economics to follow the pulse of what the market is seeing. This is how this week we have observed a very significant increase in inflation expectations for the coming months, which has been distributed very evenly within 2022, except for the last quarter. This has caught our attention, since during this week we have not had any news that, at the margin, makes us think that there will be more inflation, I don't know, in May or July. In fact, we have witnessed how agents think that August is going to be as much or more inflationary than September or October, which is something that in general that generally does not happen, mainly for seasonal reasons. I am not saying with this that it cannot happen, especially in this context with so many surprises, I am just saying that I do not see reasons that explain this weekly movement that is so clearly reflected in prices.
No one here sees the future and I have never pretended to do so. The March figure certainly came as a surprise and may have caused a lot of fear in investors about the CPI that may come in the next few months. I do not question that. I am just saying that I find it hard to substantiate these additional variations to already high expectations in light of the week's news.
It is possible that I am wrong, but, at least for me, I prefer not to jump off the top floor.
