Animal Spirits and the Election

The mood in America has pretty much sucked for the last few years.

I don’t think it’s possible to explain it with a bunch of data points…

Yeah I know, prices at the grocery store are high and the illegal immigrant count is up. And if you’re looking to buy your first house or even rent an apartment, you’re looking at a hefty bill.

But if you’ve been on strike at UPS, Boeing, or an East Coast port, you’ve landed a pretty nice pay raise. Households are more wealthy than they have ever been.

The stock market and retirement savings accounts are hitting record highs.

The service economy is going nuts. Flights and restaurants are mostly full. Cruise lines are seeing record volumes. Some folks are having a good time…

The manufacturing economy has been in contraction territory for months, but the highways are packed with trucks and the Dow Industrial Transportation Index just hit a brand new all-time high after going sideways for most of 2024.

Maybe we shouldn’t think of economics as a hard science. You see it all the time, pointy heads on CNBC or Bloomberg TV trotting out the same tired formula:

4.1% Unemployment Rate + 2.5% Inflation Rate = Happy People.

Just because you can express something with a number or formula does not make it a hard science. Economics probably shouldn’t be considered a science at all…

Every number means something different to a different person in a different place. Your “2.5% inflation is normal” might be my “Doritos are too damned expensive to buy.” Just because something kills on Broadway does not mean it will play in Peoria.

At best, economics is a behavioral science. Because an economy is the sum total of all the buying and selling decisions of a country’s population. 330 million Americans – you’d probably do better using chaos theory than economic theory to describe that many people’s actions.

I know statisticians would say something like – sure, you can’t predict an individual’s actions, but with a large enough sample size blah blah blah. These are the same people who do election polling – how’d that work out?

Animal Spirits

What’s ironic is that one of the most influential economists in history understood this idea very well.

In The General Theory of Employment, Interest and Money, John Maynard Keynes wrote:

“Most… of our decisions to do something positive, the full cnsequences of which will be drawn out over many days to come, can only be taken as a result of animal spirits – of a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.”

Keynes is just saying that people don’t tend to think big picture when we do something, we just do it. I particularly like that he didn’t make any attempt to explain exactly what “animal spirits” means – it’s just one of those “you know it when you see it” things.

You’ll hear strategist-types talk about “animal spirits” as a necessary component for a bull market. It’s supposed to describe the impulse to toss Graham and Dodd out the window in favor of a “trees really do grow to the sky” mentality.

Animal spirits are always described as being “unleashed” in the stock market, recognizable when valuations like P/E ratios become untethered from fundamentals.

Seems like animal spirits have been running wild in the stock market for some time…

Strange that if it really were all about money, you’d think Americans would be in a better mood…

I Blame Social Media

I do. I have yet to have the social media amplifier for threats, accusations, conspiracy theories, and partisan echo chambers put me in a better mood. I can’t be the only one…

So maybe, just maybe, now that the election is over and the American people have had their say in pretty convincing numbers, maybe we can all lighten up a little bit and enjoy things a little more…

Yeah I know, good luck with that right?

LOL! 😂

Cheers,

Briton Ryle
Chief Investment Strategist
Outsider Club

X/Twitter: https://twitter.com/BritonRyle

Animal Spirits and the Election

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