ToughweekinUSandinvokingWittgenstein'sRulereffect

As the news week starts the different countries face the different part of the morbid corona curve. US Surgeon General has issued a warning to the US public that this week can be the “pearl harbour moment” for US. US President also warned that “there will be lot of death” as US faces its “toughest week” in the fight against the pandemic. The grim warnings follow the expectation that the rate of new infection will start declining from the week onwards as the counter measures start showing results. Strangely Dow futures were up in the Sunday night trading. Across the Atlantic ocean, UK PM was admitted to hospital from his home where he was in quarantine after testing positive and Queen Elizabeth made a rare public appearance appealing public for calm. In Italy, the news that death rate per day is slowing down provided some solace to the otherwise grim on ground reality. China on the other hand looks at ways to restart the economy after having slayed the corona demon.

In India the numbers continue on an uptrend as the economy remains locked down behind closed doors. Indian markets are now operating with an altered timing for the next two weeks. 10 year benchmark bond trades at the yield of 6.30 today.

Last week on Friday we had the NFP data released for the month of march showing close to 700k job losses for the month. A more pronounced effect is expected to be seen in the month of April as this labor data statistic will lock step with jobless claim numbers. The fresh jobless claims data for the past week will be released on Thursday. The number of 10 million people seeking unemployment benefits in last two weeks has already frightened economy watchers and Fed stalwarts alike. During this week, Fed Reserve will release the minutes of its historic meeting on Wednesday. Minutes which come after three week of the policy meeting will provide a peek into the minds of policy makers. The other important news to follow will be on the Oil prices as OPEC + friends meet on Thursday to decide about the production cut. But in a locked down world where the massive demand destruction has upended any previous calculations, how much of the cut is enough is anyone’s guess. Brent trades at 33.5 $/bbl.

As we hear the phrases like “pearl harbour moment”,”10 million jobless claims”, ”total demand destruction”, it is advisable to pause and think that whether we have entered into a new and different world, something like the “paradigm shift” phase. It is clear that when such shift happens the tools and metrics which were useful earlier lose their efficacy. For example, in the new world where the central banks across are pumping money and GDP across the nations is contracting what is the correct “Deficit to GDP ratio” estimate. This effect when the models and metrics lose relevance has an interesting name called the Wittgenstein’s Ruler effect named after the 20th century philosopher Ludwig Wittgenstein who wrote extensively about Knowledge and Certainty. What the effect essentially says that if you are trying to measure a table with a ruler and you are not sure about the ruler’s length itself, you may end up measuring the ruler from the table. Simply put if we are not sure about the correctness of the models in this new world, our time shall now go into testing the models (aka ruler) and not the world (aka table).