Emotion might not be exclusive to humanity, but it finds its richest playground there. Animals can be affected by emotions; humans can be totally controlled by them.
Given that emotions give taste and color and music to human life, what’s the problem with that? Merely this: like so many things, emotion is a double-edged sword. It can cut out boredom, ugliness, and meaninglessness, but it can also cut out reality.
In fact, we’ve seen many case studies in the power of emotion over the past several years and decades. Democrats are masters of using it to achieve their ends (think hope and joy). Filming and airing hateful acts against protesters in the 1960s helped engender sympathy and inflame righteous indignation that powered the civil rights movement. Filmed scenes and verbal evocations enabled Great Society programs.
These victim-based emotional appeals form the basis of Democratic (and many other) practices right up to the present day. You can see it in the way Democrats have portrayed various groups as victims deserving of special protection–typically at the expense of traditional social structure.
None of this is intended as a belittling of the value of every human being. Far from it. All people matter. But so does reality. If there is one single message from the Trump election landslide, perhaps it is that humans can tolerate emotionally based deviations from reality for only so long. Eventually, most of us feel the need to stop tilting at windmills and start living productive cause-effect-compliant lives.
But what has caught up with the Democratic party has yet to catch up with investors. Perhaps that’s not surprising. It’s axiomatic that investors are typically driven by either greed or fear. Greed might not be an emotion (professional opinion is divided). Still, it clearly inclines people to emotions such as excitement and enthusiasm–and investors are obviously excited about investing in the aftermath of the election.
Emotion causes problems for analysts because it’s not necessarily rational. It can be connected to reality or totally disconnected from it, but only a fool disregards it just because it’s not rational. As the saying goes, “The market can remain irrational longer than you can remain solvent.” Many times you could substitute “emotional” for “irrational” in that sentence and be just as correct.
So, in times of high emotion in the markets, the task for the analyst is to determine whether emotion is being driven by/is in line with reality, or is in conflict with reality. And if the latter, by how much.
At present, the answer to that question is that we have a mixed bag (which, truthfully, is almost always the case, only with differing ratios). Yes, a competent businessman with capitalistic leanings has been elected. Yes, he has a track record of producing (or at least not squelching) good conditions for investment. That’s all bullish.
But the American economy is in astonishingly poor shape. Relatively few people have truly come to grips with the challenges facing a nation that has ignored reality for so long. Can Trump right such a listing ship? Are we the RMS Titanic or the USS West Virginia (badly bombed and torpedoed at Pearl Harbor, but later returned to service).
As beautifully as emotion can adorn life, it is a poor tool for analysis, and it is an immensely fickle and uncertain variable in any attempt at an equation. The analysts whose publications are summarized below strive to counter it at every turn. It is a subject for analysis, not a way to conduct it.
Key Takeaways:
- The need for thought and structure
- When disorder grows out of control
- Collecting $100 bills ahead of the steam roller doesn’t lessen the danger
- Chart brings reality to emotion
The McAlvany Weekly Commentary: Broken Signals: Bonds Say Stop, Stocks Say Go
David and Kevin note this week the extremely complex nature of markets at the present time. There are many opposing forces at work, and much obfuscating information as well. Separating the wheat from the chaff is a full-time and difficult job. David emphasizes the importance of having an analytical framework “because price movement is one thing, meaning is something different altogether.” Price movement can be indicative in the short run, but understanding longer-term probabilities demands an understanding of the factors driving that movement. David describes part of the process he and the team at MWM use to analyze markets and particular investments. It’s a meticulous and involved process that looks at many variables and is always mindful of risk. Geopolitical analysis is part of this big-picture process, and the hosts touch on it as such and then discuss some of the major developments ongoing worldwide. They also discuss the manic developments in current employment data and tie them to America’s political situation: “if there’s a Democratic Party motivation to pull the rug from underneath Trump, I think that’s a first-quarter event.” Their rationale for such a comment is compelling.
Credit Bubble Bulletin: Disorder Metastasis
“Another week’s developments confirm Disorder Metastasis has attained critical momentum—monetary, speculative Bubble, political, and geopolitical.” Doug notes that, “In one of history’s spectacular monetary inflations, MMFA [Money Market Fund Assets] inflated $2.212 TN, or 49%, since the Fed commenced ‘tightening’ in March 2022, and $3.137 TN, or 86%, since the start of the pandemic (Feb. ’20).” This confirms a contention Doug has made since nearly the start that the Fed’s interest rate increases never effectively resulted in monetary tightening. So what’s the problem with that? “Additional accommodation risks overheating.” He gives the data, and it is abundant. From there he turns to developments in South Korea and Syria, and then to the free-for-all that Syria’s distress is unleashing.
Hard Asset Insights: Great Expectations—and the Thinnest of Thin Ice
Morgan, too, contrasts market exhilaration with data indicating trouble ahead. Investing under such conditions, he says, “is like playing pond hockey on the thinnest of thin ice.” It’s fast and fun until it’s not. As Morgan shows, the indicators and analysts warning of danger and advising caution are not second stringers. They’re reliable, informed sources of important information. Much of the optimism clearly comes from the overwhelming Trump victory, so Morgan analyses some important policy goals enumerated by Trump’s Treasury Secretary nominee. They sound good until exposed to the light of careful analysis. In that light they quickly lose their cogency. Conclusion? “While the siren call toward the seemingly easy gains of an ongoing record 208% market cap-to-GDP bubble can be hard to resist, HAI is of the view that we are still in the early stages of a gold bull market that will run for years.”
Golden Rule Radio: Market Insights
Miles’ opening analysis shows the precious metals up slightly, with silver leading the pack at around a 4% increase since last week. Equities are also up, but transports are down. Miles ponders the contrast, saying that either companies are not shipping what they’re selling or perhaps there’s some year-end gaming of stock prices to goose C-suite bonuses. Rob joins him to ponder what might happen once the new administration takes over on January 20th and some of the data is trued. How will that affect companies that rely on government data for their planning projections? Miles give some historical perspective to the recent pullback in gold (hint: it’s smaller than the pullback after Trump’s first election victory). Miles then puts his charting skills to work in order to show a likely scenario for gold going forward. He explains all the factors that go into his projections and comes up with a chart you won’t want to miss.
