In the book “Thinking Fast and Slow”, written by Nobel Prize winning economist and Princeton professor, Daniel Kahneman, he states that “A reliable way to make people believe in falsehoods is frequent repetition, because familiarity is not easily distinguishable from truth. Authoritarian institutions and markets have always known this fact.”
The most repetitive supposed truth being disseminated from Wall Street has been that when and if the markets fall, it will be because the Fed has begun “tapering from” their $85 Billion per month of money printing. Few will argue with the fact that asset prices have become inflated because of liquidity. Because familiarity is not easily distinguishable from actuality, investors have embraced this agreement as the truth.
As a result, the market has celebrated bad economic news. How much could a market be trusted that celebrates bad economic news as good news? The clearest example was that of Friday’s Jobs Report, and the “range” in which institutional traders considered a catalyst for investing. Although there was a 175,000 increase in hiring last month, exceeding analysts estimates, the unemployment rate still rose. This bad news was embraced as good news, and the market rallied. If the number was better, the market would have plummeted, since the narrative revolving around when the market will fall, has been centered on tapering or ending QE.
Professor Kahneman also quoted a psychologist by the name of Paul Rosin, who said, “a single cockroach will ruin the appeal of a bowl of cherries, but a cherry will do nothing at all for a bowl of cockroaches.” It’s evident that QE has made investing almost as appealing as a bowl of cherries. The one cockroach will represent the realization that QE isn’t working beyond creating anemic economic growth.
I anticipate a sudden realization, that stock market appreciation has been created through words and narratives which are uncategorically false. A market which embraces falsehoods as truths will ultimately fail. Reality always prevails in the end. Investors must be cautious as to what they embrace as being the truth, due to the questionable nature of what they have repeatedly heard for so long. It says more about those who say it, than it does about actuality. It will not be tapering that sends the markets lower, it will be reality.
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