WATERFORD – We are sitting at a restaurant next to Waterford harbor.
This is where thousands of desperate emigrants assembled for the trip to America.
But during the famine in Ireland and the Highland Clearances in Scotland, passage across the Atlantic was as likely to be a ticket to a watery grave as to a better life.
Death rates were as high as 30% – earning the vessels the name “coffin ships.”
If the emigrants made it to the U.S. or Canada, their prospects improved. Their children or grandchildren might grow up to be president. Or, like your editor, at least get a chance to visit Waterford again.
Back in the U.S., nonfarm payrolls increased by 211,000 in November… adding to the 271,000 jobs created in October.
Word on The Street is that Fed chair Janet Yellen will stick to her plan to begin normalizing interest rates later this month.
Meanwhile, from Europe came news that Mario “Whatever It Takes” Draghi also disappointed investors yesterday. The president of the European Central Bank’s latest stimulus package was less stimulating that investors had hoped for.
It was as though a child had expected a new bike for Christmas. And then, looking under the tree on Christmas morning, all he finds is a sweater and a book. The poor boy is in a funk for the rest of the day.
The Dow sold off 252 points – or about 1.5%.
That’s the trouble with these phony stimulus measures. You’ve got to keep stimulating… or the spoiled kids get in a bad mood.
But let’s change the subject…
Bill Bonner Letter subscribers will recall from their November issuehow Yuval Harari, a professor of history at the Hebrew University of Jerusalem, describes the idea that all men are created equal as a “myth.”
It is the kind of shared narrative – not based on any objective reality – that holds a modern society together.
Today, we dig into the archives for more on the subject…
“It is largely a matter of scale… In fact, it could all be reduced to a matter of scale,” said a visitor yesterday.
We were talking about the way things work… and why there is such a big difference between the way people are able to function reasonably well in small groups and the way they seem to blow themselves up in large ones.
“Yes,” our friend went on, “once you get beyond what is usually known as the ‘human scale,’ things lose all their meaning.”
It is a question that has puzzled us for years: How is it that a reasonably intelligent man can perfectly well drive through traffic without killing himself, but ask the same man his thoughts on global warming, the War on Poverty, or public education… and what you get is such preposterous nonsense you can barely believe your own ears?
We have mentioned many times that there is a world of difference between a New England town meeting and the U.S. Federal Government. The size of the New England town meeting is one that the human brain is prepared to deal with.
At the town meeting, a man can know which of the people he is dealing with is a moron and which is a self-interested hustler.
But when it comes to national politics, the same man is totally ill-equipped for the job – like a mechanic who shows up with a pair of pruning shears… or a veterinarian with a wrench in his hand.
He is ignorant of the facts… innocent of the procedures… and completely helpless in front of the controls. He can’t tell the connivers from the honest bumblers. He has lost the points of reference that are meaningful to him.
What can the poor fellow do but resort to myths, lies, and such oversimplifications as take your breath away?
“If we don’t fight the Commies in Vietnam,” he said in 1965, “we’ll have to fight them in California!”
“If you want a better educated population, you have to spend more on public education,” he said in 1975.
“If we don’t stand up to the Evil Empire, it will take over the world,” he said in 1985.
“If you invest in a balanced portfolio of stocks, you will always make money over the long run,” he said in 1995.
What can he do?
He replaces local knowledge and experience with empty slogans. He replaces the detailed evidence before his own eyes with broad categorical generalizations. Precise figures and intricate calculations give way to statistics and averages.
The world he sees on TV becomes his world, too – a world where the local details are washed out and replaced by caricatures and national averages.
It gives rise to a whole new understanding of things. Standards are set not according to local custom or individual experience but according to the great wash of national broadcasting in which particularities are bleached out… local colors faded and real knowledge is lost in the spin cycle.
Instead of speaking his local dialect, he is soon speaking the lingua franca of the nightly news. Instead of wearing the clothes he likes, he is dressed to suit The Gap or Brooks Brothers. Instead of his own thoughts, his mind is full of jingoisms, myths, and scams.
As the scale of his world increases, local nuance and particularities lose their appeal.
The man begins to see himself and his world in new terms. It no longer matters whether his house is comfortable and attractive on his terms; now it has to be acceptable in national terms.
He comes to realize that many people are lodged in “substandard” housing. And the standard is hardly one that the man can set for himself. Instead, it is a standard set by people with no detailed knowledge whatsoever.
It is a standard based on averages… generalities… and incentives of which he is completely unaware.
How many square feet per person? How much heating? How much air-conditioning? How do these standards suit the National Builders’ Association and the Steamfitters Union?
Then, to make sure that all houses meet their standards, rules are imposed – building codes… zoning rules… materials standards.
The owner can no longer ask himself: Is this house safe enough for me? Now, the question is: Does this house meet modern safety standards?
By today’s standards even the Sun King, Louis XIV, probably lived in substandard housing.
Education, too, takes on a new look…
It is not enough to learn things; the busybodies are incapable of organizing real, individual learning. What they can organize is “Education.”
Educators can’t be bothered with individual students as they actually are, nor even with local curricula. Everyone has to learn the same thing. And they have to learn it the same way.
The world may be infinitely complex. But in the national educational program, the details have to be knocked off – like the fine, detailed trim work of an old house – so that all that is left is measurable, standardized, quantified, and allocated by bureaucrats who may have never met a single student in their entire lives.
And the formula for improvement is always the same: Are educational standards falling short? Spend more money!
Who cares if anyone is actually learning? The critical thing is that all students get the same claptrap pounded into their poor heads so that they leave the machinery with the same prejudices and illusions. The same myths. The same narrative.
The woodchopper from New Hampshire or the cabbage grower from California soon discovers that not only does he live in a “substandard” hovel and that he is “uneducated,” but also that he is “poor” to boot.
Poverty is always a relative measure, but relative to what?
A man may be perfectly happy with his lot in life. He may have no running water, no central heat, and no money. Imagine him tending his garden, feeding his chickens, and fixing his tattered roof. Out in the woods, he may even have set up a still for refining the fruits of the earth into even more pleasurable distillates.
In fact, by all measures that matter to him, he could have a rich, comfortable, and enjoyable life. But as the scale of comparison grows, the details that make his life so agreeable disappear in a flush of statistics.
He finds that he is below the “poverty line.” He discovers that he is “disadvantaged” and “underprivileged.” He may even be delighted to realize that he has a “right” to “decent housing.”
Maybe he will qualify for food stamps.
The idea of being “poor” may never have occurred to him before. He may live in a part of the world where everyone is about as poor as he is… and all perfectly happy in their poverty.
But now that the spell is on him, it sits like a curse. Poverty seems like something he has to escape… something he has to get out of… something that someone had better do something about!
His new scaled-up consciousness has turned him into a malcontent. The poor man – previously happy in his naïve particulars – is now miserable in his role as a poverty-stricken hick.
The worst thing about it: TV and popular opinion twist him toward thinking that it is the public view of himself – not his own private view – that really matters.
In a matter of months, he has forgotten how content he really is.
The public spectacle has turned him into a chump.
He sees himself on TV as an unfortunate hillbilly. The national newspapers say he needs help. They even make fun of the way he talks. And now the revenuers are in the woods looking for his still!
All over the world, local customs, styles, manners, accents are disappearing. As the scale increases, with the expansion of the globalized market economy, people are being homogenized, leveled.
Their food, their music, their clothes – all are mixed together, standardized… and like mixing remnants of paint cans – you end up with gray.
Regional variations hang on only in vestigial, folkloric form.
Whether you go to New Orleans, Nashville, or Vienna, you will hear about the same music, find the same fashions in the same shops, and be able to eat the same McDonald’s hamburger. An investor in Mumbai speaks the same language as one in New York.
But it is the particularities of investments that make the difference between investment failure and investment success. These are the very things the world financial media cannot be bothered with… the kind of precise, detailed, particular, local knowledge that you really need for investment success.
Instead, what the investor gets is the equivalent of a public school education: He knows nothing much… and thinks he knows everything.
And since all investors know pretty much the same thing – which is to say, they all share the same illusions and take them for wisdom – the markets tend to reflect the popular fashions as if they were the season’s latest blue jeans.
The same phenomenon plays itself out in a nation’s foreign policy, too.
A man knows perfectly well that he needs to be able to defend himself. Around the hills of New Hampshire, he may judge the risk of attack so slim that he goes unarmed. But walking through the back alleys of Manchester he may wish he were packing heat.
As the scale increases, he is unable to judge the risk.
Give him a little TV news… and he is ready to go to war with people he has never met, in places he has never been, for reasons he will never understand.
Here again, the scale of the thing makes a mug of the man. He cannot know the facts, the people, or even the theory. He doesn’t know what he’s buying. But he’s ready to pay with his life.
Even in matters as personal as health, a man soon finds himself the victim of scale.
The state of his health scarcely matters; what matters are statistics. He is overwhelmed by the slogans and prejudices of the national media.
Does he weigh too much? Does he get enough exercise? Does he eat enough seafood? Should he have a checkup every year; what do the statistics say? What do the papers tell him?
The large-scale chatter doesn’t even stop at the bedroom door. He may have enjoyed a perfectly satisfactory sex life. But now he is confronted with comparisons… averages… the statistical expectations of the national press.
Is he doing it often enough? Is he doing it well enough?
Before, these matters were personal and private. He used to set his own standards. But now, there is no such thing as a private matter. There is scarcely anything that is so private, so personal, so detailed, so local, and so important that it does not yield to large-scale standardization.
No longer does he know what really matters except by reference to the public spectacle, from how frequently people make love to what kind of misgovernment they have in Iraq.
We are now all the same, all the time.
We live in the same houses. We eat the same food. And we suffer the very same illusions as everyone else.
If we are unhappy, it is because the TV says we should be.
Only now we are all equal…
Further Reading: Bill is right. Now we are all equal – equally doomed by the coming credit crisis. When it hits, every service you’ve come to depend on – from your bank to your grocery store to our federal government – could shut down. The first step of protecting yourself is to understand what’s really going on. Find full details here.
As Bill said, Mario Draghi’s latest stimulus move has disappointed investors…
Yesterday, Draghi announced that the European Central Bank would cut its already negative key lending rate 10 more basis points to -0.30%. (A basis point is 1/100th of a percentage point.)
This was a less aggressive cut than the market had expected.
Draghi also disappointed when it came to eurozone QE…
He failed to up the amount of monthly bond purchases. Although he did extend the bond-buying program from September 2016 to March 2017.
As we recently told Bonner & Partners Inner Circle subscribers, eurozone QE is a major flop.
As you can see from the chart above, Europe’s equivalent of the Dow, the Euro Stoxx 50 Index, is down about 7% since the ECB started QE in March of this year.
So much for the theory that QE automatically lifts stock prices…
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The questions came pouring in yesterday after Exponential Tech Investor editor Jeff Brown’s webinar. Jeff explained why the coming wave of tech innovations will be the greatest in more than 40 years… and you can profit from it. Here are a few of the most popular themes:
Question: There are so many technology-based investment newsletters out there. How is yours different? What makes it unique?
Jeff comment: There are three major distinctions…
First, Exponential Tech Investor will focus exclusively on the micro- and small-cap technology universe — basically, companies with a market cap of $2 billion or less. This is where the highest growth rates tend to be found.
This sets us apart from other technology investment services that try to attack the mid- and large-cap companies as well. Think of Apple, Google, Amazon…
Second, we narrow our focus to sectors with the fewest factors outside our knowledge and control. We want to invest in companies that aren’t likely to be hit by unexpected news.
That’s why Exponential Tech Investor will not recommend biotech and pharmaceutical stocks, for example. Drug approvals present a huge variable that is often completely unpredictable for investors. Clinical trials, multiple clinical and FDA approvals… all these factors add volatility to the sector in a way that we can’t account for in advance.
What we do instead is invest in companies that make those industries possible: genomics and bioinformatics. These are the picks and shovels of the biotech world.
The third major difference has to do with my background. I’ve worked as a high-tech executive for 25 years. I have degrees in engineering and corporate finance. This gives me deep insight into the private high-tech industry where much of the innovation is happening right now.
In Exponential Tech Investor, we’ll track the IPO pipeline of the new generation of tech companies that are going public. These are names most investors have never heard before. And by doing this, we know which companies will be going public or getting acquired, and when. We can position ourselves to be the first to profit from these events.
Question: Why did you want to give up angel investing and start writing a newsletter?
Jeff comment: I spent the last 25 years working very, very long hours in the corporate technology world. I loved it but came to a turning point in my life because I have two beautiful boys now and want to make sure I have enough flexibility in my schedule to be a big part of their life.
Being able to put all of my background and experience in technology to work in Exponential Tech Investor is exciting for me. It is something I am passionate about and really enjoy researching and writing about. It gives me the flexibility to be an active and present father.
Another benefit is that I still have enough time to continue angel investing in smaller, early stage companies. This gives me very early access to understand the most interesting innovations happening in technology, well before they go mainstream.
Question: A lot of people made a lot of money during the tech boom of the ’90s, but then a lot of them got wiped out in the tech wreck… aren’t you concerned that’s going to happen again?
Jeff comment: It’s true, there are many popular companies today with stratospheric valuations. But the key point to remember is that these companies don’t represent the broader technology market: the S&P 500 Information Technology Index. Not even close.
Many of the most publicized companies – the “unicorns” – are not publicly traded. Take Uber, for example…
Uber took just 2.5 years to reach a $1 billion valuation. In its last funding round, it raised about $1 billion in exchange for a 2% stake. That puts Uber’s valuation at about $50 billion today.
Here’s what this means. The valuations of companies like Uber do not reflect actual investor demand. Their sky-high valuations are only based on venture capital funding.
When and if these companies go public, their current valuations will quickly settle to levels that reflect the actual value of underlying assets.
There will always be individual companies that are overvalued at times. In Exponential Tech Investor we plan to avoid these unless growth rates justify their valuations.
But there’s another big point to consider.
During the late ’90s and early 2000s, the average forward price-to-earnings ratio (the most widely used measure of stocks’ future value) for the S&P IT index was roughly double what it is today. Yet technology companies are much more profitable now than they were during the dot-com era.
In other words, at today’s valuation levels, the broad technology market is by no means overpriced, let alone in a bubble.
The mistake some investors made in the dot-com bubble was not having a disciplined risk strategy in place. Setting clear trailing stops for all positions would’ve protected their gains.
It’s always important to have a risk-mitigation strategy in place, no matter what sector you’re investing in. Preservation of capital is key when something unexpected happens. That’s why we’ll use a volatility-adjusted trailing stop loss for all recommendations inExponential Tech Investor.
Question: It seems like tech stock prices move up and down pretty quickly… so shouldn’t I be concerned that one bad pick could wipe out all my portfolio gains?
Jeff comment: There are two factors that will keep this from happening…
First is position sizing. As long as you invest roughly equivalent amounts into all picks, no one individual stock can wipe out all your portfolio gains.
Second is to use trailing stops. In Exponential Tech Investor we’ll use volatility-adjusted trailing stops. This allows us to set our trailing stops based on the individual volatility of a stock and helps us protect gains in the event of a pullback. It will also help reduce losses if a company releases some unexpected bad news.
In short, with both trailing stops and balanced position sizings in place, no single stock can eliminate all of your portfolio gains.
Remember: Volatility affects publicly traded stocks of every kind, not just technology. The area where Exponential Tech Investorfocuses — high-growth, small-cap technology stocks — can definitely have volatility as well.
There does tend to be a lot of volatility in the technology sector – especially in the smaller-cap companies…
But risk and reward are inextricably connected. If you want the opportunity to achieve truly life-changing returns, you have to shoulder more risk. If you want safety, you’ll have to content yourself with meager rewards. At Exponential Tech Investor I’ll be aiming to deliver game-changing returns.
So if you know what you’re doing… and you have the right contacts in the industry, as I do… you can find stocks that compound every year by 20%, 30%… 40%. Those are the type of stocks I’ve more than doubled my money on in the past. And they’re the type of stocks I’ll be recommending in Exponential Tech Investor.
Editor’s Note: A free replay of Jeff’s exclusive webinar is now available at www.bonnertraining.com. But it’ll only be up for a few days, so don’t miss your chance to hear what Jeff had to say about the highest growth technology companies… the best sectors to focus on right now… his method for buying these stocks at exactly the right moment… plus a whole lot more.
And if you attended Jeff’s webinar and just want more information about his special introductory offer, go here for details.