The Hour Between Dog and Wolf: How Risk Taking Transforms Us, Body and Mind

by John Coates

Investors during bubbles seem to come equipped with special eyewear that permits them to view all economic news as bullish. Weak economic growth spells lower interest rates, so stocks and risky assets rally; strong economic growth means healthy balance sheets for both corporations and households, so stocks and risky assets rally. The dollar strengthens, and this means foreigners love U.S. assets, so they rally; the dollar collapses, and this aids exporters and hence the economy, so assets rally. With this kind of spin no news dampens animal spirits for long, so by noon the stock market, celebrating the impending lower rates, has started to rally, and rally strongly. By the end of the day the S&P stands 3 percent higher. Scott is mesmerized by his risk-management system, hooked electronically to the screens, for it calculates in real time the P&L on both his S&P contracts and his stock-to-bond spread trade; and toward the end of today not even he can remain calm as the number climbs to almost $15 million, bringing his year to date close to $32 million, more than he has made in his best full year.