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. 

Yanny vs Laurel

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: 

Lindsey Vonn

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.

“It's definitely moving.”
- Ventura County Sheriff's Capt. Garo Kuredjian discussing the Thomas Fire on December 7, 2017.(1)

Right he was. From Fillmore all the way to Santa Barbara with damaging stops in Ventura, Carpinteria and Montecito. Three weeks later containment finally reached 90%. What caused this to become the largest fire in California history? Is the blazing stock market on a similar path? Will Tax Reform add gasoline to the fire?

We want to preface this conversation by expressing our most sincere sympathies to everyone who lost their home, and our gratitude for all the efforts that went into minimizing property damage and protecting human lives. We are using the fire metaphorically, and are not suggesting anything positive about the actual Thomas Fire.