The Rest Isn't Noise

Public better attuned to radical change than financial professionals?

‘a human demonstrates an information rate of no more than 40 bits per second.’ - John R. Pierce

We’re in a paradoxical era. There are constant unwanted surprises yet almost all the ‘surprises’ are strangely well advertised beforehand. This was true of the GFC, Brexit, COVID-response, money/fiscal expansion, Trump’s 1st victory, Trump’s 2nd victory, the invasion of Ukraine. All foreseeable and foreseen (by some) yet ignored. Now we have the totally unsurprising announcements on mass tariffs and an evidently wholly unprepared response from investors. Is the public better prepared than financial markets for these surprises? Why can’t the tune be discerned before the end of the dance?

In April 2025, the Economic Policy Uncertainty index for the US hit historic highs, diverging radically from traditional gauges like the VIX index, which measures expected stock market volatility. The VIX is therefore a reasonable gauge of financial professionals’ assessment of uncertainty, while the EPU Uncertainty index measures wider public discussion of uncertainty. The VIX currently stands at around 30 - elevated but not near its historical peaks—Economic Policy Uncertainty (EPU) continues at close to highest-ever levels.

There’s a corresponding paradox in Information Theory. In some respects more information can reduce uncertainty of a system as parameters become known. However if the volume of information exceeds the parameters of the system, chaos ensues. Public measures of uncertainty suggests the cascade of data from countless sources, fuels a challenge to existing parameters - in government and in society generally. The cycle encourages anxiety, which in turn amplifies uncertainty—a feedback loop that intensifies societal unease.

Its a dynamic exploited by the media itself, whose survival hinges on capturing and maintaining audiences through promoting apprehension. And so, the heightened focus on fear and unpredictability feeds into a self-perpetuating cycle. Yet, the progressive rise in repeated unwanted surprises in recent years has not led to many obvious major changes in future assumptions about returns or growth among financial professionals. That seems odd.

Spikes in uncertainty, especially those of the magnitude of early 2025—exceeding COVID-19 shocks—can trigger recessionary conditions. Models suggest such uncertainty leads to substantial contractions in economic activity, with potential declines in GDP growth, employment, and inflation over the coming quarters. Yet, despite these alarms, professional economists remain cautiously optimistic, projecting continued growth through 2025 and into 2026.

Who is right? There’s a case to be made that in the long-run, the public have a better grasp of changing economic and financial conditions than the professionals.

The rest isn’t noise, president & trumpet