Our third-quarter report in October drew water from the intellectual well of Robert Shiller’s latest book, Narrative Economics: How Stories Go Viral and Create Major Economic Events. The Nobel laureate delved into various perennial-narrative continuums—panic vs. confidence, priority of capital or labor, techno-philia or -phobia. These continuums are deeply rooted psychological frameworks for interpreting social life, and shifts along them have important economic effects as they embed themselves in the collective subconscious.
Continue reading “Past as Prologue”Patience: An Undervalued Virtue
The most consequential truths are transcendent. Take, for example, the dynamics of personal consumption. The financial decisions we make today have consequences well beyond the present moment. The virtue of patience, and its alter ego, impatience, are central to the choices we make. As they determine our spending patterns, they are responsible for what options will be available to us in the future. These inter-temporal[1] choices are many, but a perennial truth is that by consuming less today, consumption levels could increase significantly in the future—and vice versa.[2]
Continue reading “Patience: An Undervalued Virtue”How a Public Narrative Can Move Markets
Advice to leaders of all sorts is abundant, from coaching programs to graduate courses in organizational management. Some of it is good, much of it is repetitive. Truly effective leadership is found in the doing more than the knowing. Character, long a leadership trait valued by those under the authority of others, is earned through practice far more than study. This is not to dismiss the value of leadership training, but to highlight the startling tack taken by the particularly boorish admonition to leaders below:
Continue reading “How a Public Narrative Can Move Markets”Only the Shadow Knows
Andy Kessler recently wrote an opinion piece for the Wall Street Journal on the “shadow banking system” based on research by Jeff Snider of Alhambra investments. Snider’s work is complex and impressive. He has astutely tracked this hidden side of finance for years and routinely warns about the threats it poses to financial markets.
Snider’s insight is nothing new. Its appearance in the pages of the Wall Street Journal is.
Continue reading “Only the Shadow Knows”Flying Blind
The expression “flying blind” dates back to World War II when pilots who couldn’t see the horizon because of darkness or clouds were forced to rely on their rudimentary navigational instruments. Many became spatially disoriented (SD), experienced vertigo, and often crashed. Even today IFR pilots (instrument flight rules) are not immune from SD. The U.S. Air Force investigated 633 crashes between 1980 and 1989 and SD was identified in 13% of cases as a contributing cause. Non-instrument-rated pilots (VFR or visual flight rules) have a life expectancy of less than three minutes when encountering weather conditions that require navigation instrumentation.
Continue reading “Flying Blind”Pushing on a String
“The Vicious Cycle” was the heading for the final paragraphs of our post on August 1. It was written on the eve of the double whammy the market took from dual announcements by Fed Chairman Powell and President Trump. The former surprised observers by describing the Fed’s 25-basis-point cut to the discount rate as a technical “mid-cycle adjustment.” The latter dramatically escalated the trade war with China by tweeting out a planned 10% tariff on consumer goods by September 1. Based on the knee-jerk reaction of the equity markets, it would appear they wanted less from Trump and more from Powell.
Fast-forward to today, August 16. The intraday volatility of the S&P over the last two weeks has been tellingly extreme.
Continue reading “Pushing on a String”The Tides Trump the Waves
Based on the dearth of criticism from Democrats, they must believe that the domestic economic performance since the passage of the Tax Cuts and Jobs Act of December 2017 has been robust. Such an opinion is well-nigh ubiquitous. Beneath such waves of enthusiasm, though, more powerful tides may well tell a different story.
Continue reading “The Tides Trump the Waves”Why 1925?
Just shy of five years ago, the following essay posed the question that seems even more relevant today: Why did the “Dean of Wall Street,”[1] Benjamin Graham, single out 1925 (not the more fortuitous years of 1926–29) in the following quotation from the first edition of The Intelligent Investor published in 1949?
Continue reading “Why 1925?”It is worth pointing out that assuredly no more than one out of 100 who stayed in the market after 1925 emerged from it with a net profit and that the speculative losses taken were appalling.[2]
Head Fake
In the financial markets, head fakes happen when the market appears to be moving in one direction, but ends up going in the opposite. In January 2018, after an exponential rise on low intraday volatility from August 2017, it unexpectedly reversed course through April. From there, through late September it ascended to an incremental new high, with spectators making note of each new record along the way. Lulled into the invasive complacency that attends such market moves, apathy morphed into shock when the S&P subsequently dropped like a rock, giving up 20% by Christmas Eve. In an abrupt reversal of policy, the equally blindsided Fed went from hawk to dove overnight. In the first six months of 2019, all the ground lost, and a little more, has been recovered.
Continue reading “Head Fake”