Although the global bond market is actually a little bit bigger than the global stock market (around $160 trillion vs around $158 trillion), nobody talks about it. Bond markets are like plane rides. They are either very boring or very scary. When they get scary, people start to notice. As we mentioned in previous posts, interest rates tracked a steady long-term decline from 1980 to 2022. Not surprisingly, asset prices, especially shares and housing, tracked a steady long-term rise. Bond yields appear to have bottomed in 2022 and have been moving higher since. Most of the public’s attention is on the central banks, like the Reserve Bank of Australia (RBA), with most people assuming (and the media reinforcing this assumption) that the central bank controls the interest rate. They don’t.

Back when I was first scoping out topics for my PhD, I seriously considered doing something at the intersection of Complexity Theory and financial economics. Complexity theory had emerged out of the body of work that had earlier produced Chaos Theory. Both had, at times, elicited a great deal of excitement across many different fields, including economics. Most of that excitement has long since faded away. At the time, I read a lot of the chaos theory work that had been published in economics journals, along with various books on both chaos and complexity. For the general reader, it is hard to go past James Gleick’s Chaos: Making a New Science. There are good books about Complexity, but Gleick captures something of the milieu that escapes the authors of the other books I read.

While you’re watching the oil price or, more likely, the diesel or petrol price, there’s a lot of interesting action going on in markets for all the other things that we get from refining a barrel of oil. Most people don’t realise just how many products are derived from oil. Even if we never burned another litre of it for fuel for cars, boats, jets, and ships, we would still need to pump and refine a lot of oil. How much? Well, we use about 100 million barrels a day. And about 85% of the oil that we pump is used for energy. So, we would still need at least 15 million barrels a day for all the other things.