What is your line when people ask you what you do for work? Ever strike up a conversation about markets and quarterly reports at the dinner table?
I wouldn’t suggest it, and I tell people the most literal version I can think of: “I mostly read, then I write about it.”
Boring and broad, sure, but if I stumble on the right article or report, there is a hook — often an analogy — that clicks right in place, right in time.
Last evening over dinner, an old friend was foolish enough to delve deeper, and I took something from what I just read, and said, “These days, I’m writing about how markets hijack minds.”
The Illusion of Choice
A good analogy works wonders, and I found one this weekend reading an article by a former Google Design Ethicist.
I feel woefully old and outdated even knowing that job title exists.
However, what he wrote about from his experiences resonates far beyond the curated list of options we are presented online. It works for every time others have an influence on what we do.
In the article, entitled “How Technology Hijacks People’s Minds,” Tristan Harris almost immediately drops four critical questions:
When people are given a menu of choices, they rarely ask:
- “what’s not on the menu?”
- “why am I being given these options and not others?”
- “do I know the menu provider’s goals?”
- “is this menu empowering for my original need, or are the choices actually a distraction?”
Have you ever read a better checklist for anyone who must be skeptical when they have to navigate something controlled by others?
This list could apply to virtually anything, and it certainly applies to how we should question the markets we deal with today.
Any Port In a Storm
What’s not on the menu are interest rates and yields that truly reflect their risk with rewards. Nor are index funds that have realistic price-to-earnings multiples.
We are given these options and not others because small investors are a powerless, fractured majority. We largely invest through banks and institutions while relinquishing our shareholder vote.
We know the menu provider goals because regulatory capture is rampant, and there is a third mandate from central banks that — in addition to containing interest rates and unemployment — have unilaterally decided that full equity investment is necessary.
And the hardest question to answer: is this menu empowering for our original need?
That is where it gets tough to judge. Not only do we have to deal with a dwindling list of options, we also have to deal with the crowd of other investors who are looking for a safe harbor.
While U.S.-based equities are seeing shrinking revenues and sales in the near-term, the rest of the developed world is sinking in a quagmire of negative interest rates, welfare states, divestment, and the threat of recession.
Nothing is truly safe, but there is always a safest option. Today, we’re pretty much the sole port to find in a storm.
King of the Hill
We’re already seeing the results of this, and the longer limited monetary policy is brought to bear against broad economic forces it can’t contain, the worse it will get.
Trillions of dollars of exclusive benefits and discounts for too-big-to-fail banks have failed to stimulate capital investment, consumer spending, or GDP growth.
Negative interest rates, an unholy aberration by any measure, have only stimulated currency debasement and export wars.
Every policy is intended to produce growth, but only fuels fights over what is left. In the case of the U.S., we’re basically it.
We’re the king of a hill that is slowly sinking into a sea, and the rest of the crowd is throwing what they have onto what we’ve got. Over time, we’re just packing closer and closer together.
That means equities across the board melt up to previous levels, but haven’t produced a gain for shareholders in two years.
It means a dollar that is stronger than any other currency built on faith, but at a fraction of what it was worth about four decades ago when wages stagnated.
And it means we have to react to everyone else as much as we have to adapt to how the foundation below us weakens.
Dwindling Options
What we’re dealing with is a market of dwindling options, and it is starting to show. Equities and bonds are bloated with money, and what profits are to be had are spread thin.
Now, in reaction to an insufficient menu of what we’re supposed to do, more and more people are ordering off the menu presented to us:
- Outflows from high-yield junk bonds and inflows into the safest corporate bonds. The tide of money has reversed.
- Low-volatility, high-paying dividend plays are outperforming index funds by a wide margin. Speculation is being tempered by lower-risk income investments that return a steady stream of profits to shareholders.
- Gold is up 17.5% year-to-date, while the S&P 500 is up 0.5%, and even up 3.5% vs. -3.5% for a full year, respectively. Go out to 10 years and it is 82% vs. 62% in favor of gold.
In short, we may be seeing more and more people herded into full equity exposure, but we’re also seeing more and more people meet their own needs.
Make sure you weigh all your options. Ignore the easy path right in front of you, and don’t be hijacked into thinking you can only choose from someone else’s list.
