Snow globes have an uncertain origin, but were on display at the International Expo in Paris of 1878. (1) Below, one can see a clear depiction of a wintery scene: house with a fireplace, three trees and a snowman. Once shaken, the small snowflakes fill the globe and blur the view. Critically, the perceptions generated from shaking prove ephemeral and, once the snow settles, the original image is restored.
The New York Stock Exchange, celebrating its 61st birthday when the snow globe debuted, reminded everyone during the 4th quarter that it too is all about perspective. (2) Howard S. Marks, the highly respected manager of distressed debt, and author recently wrote:
“You just can’t think of the market as this machine. There is no schematic for how it works. It just picks funny things to obsess about on the positive side for a while and then the negative side.” (3)
It’s almost as if the stock market exists inside a snow globe that periodically gets shaken. This note will examine the genesis of the recent storm and to provide historical context.
How would you like to be locked into a room without windows? Your friends can join, but nobody gets out until you solve several mental puzzles. Oh, and you have to pay to play. In 2014 there were 22 such “escape rooms” in the U.S. By the summer of 2017, there were 2,000. (1) Crossword Puzzle recently celebrated its 100th birthday. Modern Sudoku debuted in 1979. Last year’s world championship attracted contestants from 34 different countries. This begs the question: Are we obsessed with problem solving? Anthropologist Peter Stromberg comments that although humans don’t innately like uncertainty, we do like figuring things out. (2) Mystery novels are the second most popular genre for books. (3) Meanwhile, estimates for the size of the sports betting industry reach as high as $150 billion. (4)
Our penchant for soothsaying transcends books, movies and sporting events. Historically the subject of considerable speculation, the stock market has garnered extra scrutiny recently, owing to the extended duration of the current bull market. The purpose of this note is to provide historical context to market cycles, profile the diviners of bold predictions and assess their accuracy. We will save our forecast for the market’s demise toward the end, just to build suspense.
In the spring of 2018 students in a recording studio stumbled onto something when playing back a recording of the word “Laurel”. Some in the room heard the word “Yanny” instead. In May Twitter picked up the recording, and it went viral. If you have not heard it, we encourage you to use the link below to listen:
Here’s what makes this fun: the actual recording never changes. However, 53% of listeners hear the word “Laurel” with the remaining 47% hearing “Yanny”. Linguists can explain this, but for our purposes, it’s only important to recognize that the ambiguity is rooted entirely with the receiver of the message, with no influence from the “sender”.
Think of the confusion that can occur when the “sender” purposely bends the message to achieve a certain outcome. Think cable news.
Spin any of the Big Three current major financial issues (trade wars, interest rates and economic growth), combine that with innate listening subjectivity and throw in some human behavioral tendencies, such as confirmation bias, and you have the stock market. Let’s examine those big issues:
OK, we admit to being financial geeks. Sure, we run spreadsheets, monitor markets, and dig through new tax laws, but it goes way beyond that. We see many of life’s adventures through the prism of the financial markets. Consider our views of the Winter Olympics, recently televised from South Korea. Through every event, every participant and even every uniform, we glimpsed parts of the financial landscape.
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