Rabo: The World Has Broken Down Into “Quantum States”

By Michael Every of Rabobank

Let’s start nice and light for a Monday morning. Most readers probably have a passing knowledge of quantum physics: that a “quantum state” is a mathematical entity that provides a probability distribution for the outcomes of each possible measurement on a system; or, in this case, that particles at the quantum level can exist in two different states at once –until measured— at which point they become “fixed” (and in the case of some particles, “entangled”). Think of Schrödinger’s cat or Heisenberg’s indeterminacy.

So? Well, a research paper published in 2019 but suddenly doing the social media rounds in 2020, goes a step beyond this: as the MIT Technology Review put in its headline, “A quantum experiment suggests there’s no such thing as objective reality”

The article underlines that…

“The idea that observers can ultimately reconcile their measurements of some kind of fundamental reality is based on several assumptions. The first is that universal facts actually exist and that observers can agree on them; [second] is that observers have the freedom to make whatever observations they want; and another is that the choices one observer makes do not influence the choices other observers – an assumption that physicists call locality.….If there is an objective reality that everyone can agree on, then these assumptions all hold.”

That all seems reasonable, right? But the results of the 2019 University of Vienna quantum experiment suggested that one or more of the above assumptions – that there is a reality we can agree on, that we have true freedom of choice, or that what one decides does not influence the decisions of others must be wrong. Pretty head-spinning stuff… unless you have spent any time near social media (slash media?), where all three are demonstrably false.

Yet quantum physicists saying there is no objective reality is perfectly 2020: making a terrible pun, we seem to have some ‘quantum states’ to worry about.

1. The US election has two ‘winners’ – at least in the minds of the two main candidates who ran and the majority of the public who voted for them. Opinion polls show a very large number of Republicans believe President Trump when he says he actually won and it was all “rigged”; and the majority of Democrats of course believe former Vice-President Biden as he carries on assembling a provisional cabinet for January – and spraining his ankle playing with a dog. This week should see developments that will make the final outcome more “measured” in the quantum sense: will the Supreme Court or state legislatures prove wild cards?  On which note, I have been arguing for some time that in many senses we are heading back to a more 19th century world: a multi-polar environment of populism, nationalism, mercantilism, neo-imperialism, militarism, etc. In such a polarizing environment between and within countries, why *wouldn’t* US elections echo 19th-century (1824, 1876) templates rather than 2008 or 1980, etc.? There is also a story going round that Trump, if he loses, will hold his own shindig on inauguration day to announce the launch of his campaign for re-election in 2024: that certainly puts us straight into potential 1824 > 1828 territory, something Newt Gingrich has also tweeted about recently. While quantum physics knows as well as markets that past does not predict future, don’t forget the populist Andrew Jackson won in 1828 after claiming he was cheated in 1824.
2. Brexit also has two (short-term) outcomes: a deal or no deal. It seems that if there is movement on fishing rights, then we get the former; and if there isn’t, then there isn’t: so is it a case of Schrödinger’s fish? Word at time of writing was that things were looking up. (Again, the British tone is all very 19th century, right the way down to the Brits no longer being funny anymore – except inadvertently.)
3. China’s economy continues to power ahead, with bumper net exports and capital inflows and industrial profits all being recorded: and yet the PBOC just had to inject CNY200bn (USD30bn) in MLF a month ahead of the end of the year to ease liquidity tightness, and that on the back of CNY800bn two weeks ago. Yes, this is gross not net: but why the need for so much PBOC help when everything is going so well? Perhaps because Chinese banks are still trying to repay CNY3.7 trillion of short-term interbank debt and purchase CNY1 trillion of government bonds and repay maturing MLF injections,…and are worrying about SOE bond defaults. Again, everything is going so well though: there just isn’t any cash as a result. Isn’t the most dangerous part of the Heisenberg below the water?

In all three cases, markets decided which way to “measure” these quantum states weeks ago – and without digging down too many levels in detail, let alone to the sub-atomic. Should any outcome start to look indeterminate again, the current halo of market risk-on invincibility may slip.

Other matters, like the assassination of the head of Iran’s nuclear program Fakhrizadeh by a remote-control automatic weapon, and threats of retaliation from Tehran, can more easily be brushed aside by Wall Street, no doubt, after a brief knee-jerk risk-off response (as they were, correctly, back in January when Soleimani was assassinated).