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If you want to better understand the world of markets, you need a framework. Lots of them, actually. You already have loads of frameworks that you use every day and barely even notice, so you don't even need to build anything new.

The easiest way is often to remove unnecessary pieces from old frameworks and streamline them.

See, if you view the world through a mainstream media prism, it's easy to fall into an emotional, moralistic trap. That's bad.

It'll cloud your perspective of the world and distort your view of what's actually going on.

So... remove your morals, at least temporarily.

I'll explain...

This graphic is a superb example of moralising. It was shared under the headline:

Who's financing Russia's war against Ukraine? 👇

It's so easy to have an emotional response to that combination...

Behold this axis of evil and sin! Financing the war while pretending to offer support to the Ukrainian people! Disgusting! Assemble the mob, and bring the pitchforks!

Enough sarcasm (even though it IS the highest form of wit). Those figures are probably correct (or close enough), but it's the framing that's completely wrong.

If you share the exact same graphic, from the exact same social media account, but switch the headline to something like

“Who’s buying energy from Russia because of long term supply contracts and a lack of short-term alternatives, thus indirectly financing the war?”

I reckon you'd slash the engagement by at least 90%. And it's obvious why.

It's boring.

That's the social media game though. Everyone knows it by now (I think?).
Social media's a battle for attention, and rhetoric's a powerful tool to bypass your intellectual defences and earn those tiny, precious pink hearts... 💗

The Rhetorical Triangle

(The war financing chart is perfect pathos)

Then we come to ethics. Abandon those too. 😉

Sticking with the Ukraine war, as it's a current theme, I saw this question on my internet travels:

Why has there been little criticism from Western leaders of countries (eg China, India) who are buying cheap Russian crude?

Now, hiding within that question is the implication that they SHOULD be criticising them...

But why?

India has their own interests to protect, their own people to provide for. It would be more surprising if they didn't buy Russian oil, especially if it's available at a discount...

We can frame it another way:

Why should the Indian people pay the price for Europe's flawed energy policy that allowed them to become excessively reliant on Russian fuels?

Added some pathos there to make the point...

We can dissect it another way too. Imagine that India were to join the West in boycotting Russian oil. What happens next?

India would be competing with the West for a smaller amount of oil, presumably at 'artificially' high prices due to the voluntary 'removal' of supply from global markets.

So they'll either get less oil, or pay more for it. Can't imagine the Indian people being too happy with their leadership in that situation.

One more angle to really ram the point home... If the Ukraine invasion hadn't happened and Russia were instead expanding into Chinese territory, would the West have been so keen to punish Russia in the same way (to their own detriment)?

Or would the West play the exact same role that China has? Plenty of words, a few actions, but crucially, no acts of self-harm...?

Nothing's impossible, but it'd mean Western leaders taking some serious risk for no political reward...

See, in every country, the government's role is to ensure society's basic needs are met. Maslow's hierarchy is all we need to illustrate this.

The governments' role is essentially to ensure those bottom two tiers are fulfilled. The rest of it's up to us...

If any government fails to do this (regardless of political party or ideology), they won't normally be in power for long. If there's one thing hangry people love, it's a good riot.

Back to the ethical/morals of criticising India/China. The conversation evolved to this...

There's a difference between a commodity trader leaving ethics behind at home and valuing profits over all else. If glencore or trafigura was doing this (which they probably are) I don't really have a problem with that. But when nation states do it, I feel it's different.

A classic. Another commonly-held misconception is that commodity traders act purely out of greed. They don't. They're just good middlemen. They take a LOT of risk, and when they do well, they get handsomely rewarded.

When they're wrong, they lose a lot. It evens out to profits in the end or they go bust. But they play a fundamental role in managing supply and demand of commodities for global markets.

And here's the key thing. If ethics mattered most, commodity traders wouldn't do anything unethical. There'd be no demand for their products. No market for them to sell into.

This is a great read on Vitol 👇

Inside Vitol: How the World's Largest Oil Trader Makes Billions (2016)

In its 50-year history, the publicity-shy energy company hasn't seen an annual loss. Now business is becoming more competitive than ever.
To ensure supply, Vitol will provide cash upfront to companies such as Russia’s Rosneft or governments like the one that runs oil-rich Kurdistan in northern Iraq—more than recouping its money when it sells the oil.
“The perception of them is as speculators,” says Craig Pirrong, a finance professor at the University of Houston. But, in reality, he says, Vitol is an intermediary between consumers and producers.
It will turn supertankers into floating storage farms, timing sales to beat roller-coastering prices. In 2015 it hired one of the world’s largest tankers—a 380-meter vessel as long as the Empire State Building is tall—to store crude. On any given day, Vitol has about 200 ships at sea. Last year the company logged 6,629 ship voyages.
For the most part, Vitol is a passenger riding the oil market.

Recommended Reading:
The World For Sale
The King Of Oil

So, even though people love to talk about the corrupt morals and lack of ethics in others, especially those in decision-making roles, it's best to put those judgements to one side. Self interest is at the root (literally, sometimes you have to dig to find it) of everything.

See, if you're judging others before you truly understand their motives, your own thoughts are corrupted by those moral and ethical judgements, which, in turn, are driven by a belief that the person/company SHOULD be acting in a certain way.

Instead of focusing on what they 'should' be doing, here's a suggestion.

Try to figure out why they are acting that way. What are the constraints of what they can do/say? How about their motivations? Are they talking about something essential (restarting coal plants) or something aspirational (net-zero)?

You'll have to be a bit cynical, but it's a worthwhile exercise.

It's not that morals don't matter. It's just that they're further up Maslow's hierarchy. They're a luxury for policymakers and society to focus on once the foundations are solid.

And they're also a luxury for anyone trying to figure out this beautiful, collective madness of markets and the economic world.

Ultimately, if you want to understand markets, you have to put morals to one side. It's tough, but the world doesn't run on platitudes...

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