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Yesterday we had written about the US President’s dalliance with corona virus and the possibility that he might be discharged too. The word of caution was appended that the markets, which were in a sort of risk on mood, need to be patient until “the fat lady sings”. Markets, it turns out, were right in their optimism as he was discharged from the medical facility and came back to the White House. Later on Twitter he wrote that American people need not be afraid of the virus and as he comes back to the campaign trail he can be regarded as an invincible hero. The US President also wrote in one of his other Tweets that the stock markets are “UP BIG!”

Taking stock of the markets across the world, US stocks were up. The Dow Jones was up 1.68%, Asian stocks are also up. The Hang Seng, Nikkei, Kospi all are in gains. Safe haven assets have retreated. The Dollar Index is down. Bond markets have also reacted to the news with yields on 30 year US treasuries and 10 year both up. The 30 year treasury bill is up 10 basis points at 1.59% whereas the 10 year US treasury is trading at 0.76%. Gold is up at 1910$/oz.

Now let’s come back to the point that the markets had already factored a non-negative outcome of this episode and were already in a risk on mode on Monday morning itself. This phenomenon, where the markets are able to make a correct bet based on the myriad of unconnected, decentralised information sets, is referred to as the wisdom of the crowd. Markets are in fact aggregating the judgements of many which is in fact better than one single predictor making a prediction.

In his book Super Forecasters, author Philip Tetlock refers to this approach by recounting a social experiment conducted by Sir Francis Galton. Sir Francis went to a country fair and asked the public to guess the weight of an ox on sale after it was “slaughtered and dressed”. The average guess of the crowd was 1197 pounds which was just one pound short of the correct answer of 1198 pounds. The key insight in this amazing result (repeatable) is that the information is dispersed widely with every individual possessing a different end. In the case of the ox experiment as the butcher, the fair regular, the householder and the passer by all contributed with their assessments, the aggregation combined the wisdom of all. Though the asset markets don’t have a singular correct value like the ox’s weight, the concept of information aggregation can be seen at play even there. Trump’s possible discharge from the Walter Reed facility was one such crowd-based prediction.

Philosophy aside, other news which is impacting the markets is the possibility of the second pandemic relief deal as House Speaker Nancy Pelosi and US Treasury Secretary Mnuchin had a long phone call yesterday.

Domestically the major news on the bond side was the appointment of the three new members of the MPC committee. The 10 year benchmark bond trades at 6.01 in the opening.