OUZILLY, France – “In the short run,” says billionaire investor Warren Buffett, “the stock market is a voting machine. In the long run, it’s a weighing machine.”
Put another way, in the short run, the stock market responds to myths and fads. In the long run, these give way to facts.
Remember, myths are not necessarily untrue.
But whatever truth they have seeps from human imagination, not from facts imposed by the outside world.
Gravity, for example, is a fact. You jump out of a second story window; it doesn’t matter how hard you flap your arms or what you think, gravity will pull you down toward the sidewalk.
Corporate profits, too – though they can be manipulated and massaged – are facts. Mythical profits don’t pay real bills.
But there are other “facts,” too… those that owe their existence entirely to our mythmaking ability.
They may begin life as plausible observations. But then they have a way of growing… expanding… mutating into outsized delusions – ones that may cost a nation its money and its soul.
Were the pharaohs divine?
Apparently, the ancient Egyptians thought so. For 3,000 years, they were so devoted to this myth that they applied almost the entire economic surplus of the Nile Delta to building monuments in their honor.
We know of no physical tests for divinity. You might say, “Someone who is divine can’t be killed.”
On occasion, they put a Thutmose or a Neferkare to the blade; they died like everyone else.
“Gods don’t die,” said the doubters. But Jesus did. And Christian scholars spent centuries arguing about how and why that was possible.
In the end, a divinity can do what he wants. He can appear dead… or seem to be mortal in other ways. There is just no way of knowing.
For all we know, the pharaohs were divine. Certainly, it was convenient to believe it – at least for them and the elite surrounding them.
Adolf Hitler (among others) promulgated the myth of a master race.
At first, people took him for a crank. The intelligentsia made fun of him. The “Austrian corporal,” they called him. Or the “little housepainter.”
Even when Hitler became chancellor in 1933, the thinking in polite society was that he could be “tamed” by dutiful functionaries and the weighty responsibilities of his office.
Instead, the myth of the Übermensch (an idea Hitler borrowed, completely out of context, from Nietzsche) took hold of large numbers of Germans.
Again, there was no way to prove it wasn’t so.
And as time went by, more and more people found it agreeable; it gave them a way to feel superior… and perhaps buy a house down the street that used to be owned by Jews, at a bargain price.
Besides, the Austrian corporal was making German industry the envy of the world… with factories booming and full employment. (This, too, was a myth: Hitler had created a bubble economy based on dead-end military spending.)
But as more and more people found it convenient to believe the myth, the more self-evident it became. Soon, they were marching to Stalingrad.
Myths stretch or shrink depending on what you think of them.
According to a new report from Brown University, next year the total sum committed to the War on Terror will rise to $4.7 trillion.
That’s an amount equal to nearly one-quarter of annual U.S. GDP, transferred from the public to the terror-fighting industry.
The War on Terror is the longest war in U.S. history. And for the security industry, it’s the most profitable war ever. Of course it is real!
(When President George W. Bush first announced the War on Terror, we guessed it would do no good… and that it would cost “more than a trillion dollars.” We were off by $4 trillion!)
There is a word for this phenomenon. We can’t remember what it is. “Self-fulfilling” will have to do.
The more you focus on it… the more real it becomes. Give out the word that terrorists are lurking around every corner. Bomb them, drone them, kill them. (Some estimates put the number of dead at more than 1 million.)
See something, say something! The more enemies you make… the more enemies you have. Then there is no need to look for evil; it will find you!
“Another suspicious package found…” says a Bloomberg headline this morning.
Sticking with round numbers, the War on Terror has cost about $350 billion a year over the last 15 years. Like the pyramids, the project absorbs much of the nation’s surplus output.
But wait. Where did the feds get so much money? Were taxes raised to cover it? Was spending cut in other areas?
How was it financed?
With debt, borrowed at the lowest interest rates since Ramses and Amenhotep.
At current yields and current inflation, the U.S. federal government can borrow at almost no cost. It is free money.
But that, too, is a myth…
Further Reading: Today, one of Bill’s top analysts is holding a brand-new investment masterclass. He’ll explain how to focus your portfolio on stocks that can return 100x your money… the kind of stocks that can fund your retirement with just one win.
The masterclass is absolutely free to Diary readers, so you don’t want to miss it. To sign up, click here.
BY CHRIS LOWE, EDITOR AT LARGE
Attention, tech investors…
Today’s chart tracks the performance of America’s big tech stocks by way of the Technology Select Sector ETF (XLK).
And it compares it to the performance of the big S&P 500-tracking ETF, the SPDR S&P 500 ETF Trust (SPY).
As you can see, starting in July, tech stocks have exploded higher, relative to the broader market.
Editor’s Note: Subscribers to Jeff Brown’s Exponential Tech Investor advisory know all about the recent run-up in tech stocks… they’re currently sitting on two triple-digit winners that just keep going up. To hear about some of the biggest technology trends Jeff is following right now, check out our new presentation. It’s a must-watch for any would-be tech investor.
New Explosion in New Jersey Follows NYC Bomb
An explosive device found in a trash can in New Jersey exploded this morning while the bomb squad was trying to defuse it. This marks the fourth incident in the New York City area in four days.
Maybe Interest Rates Will NEVER Go Higher
Two years ago, the Fed mapped out a strategy for withdrawing the central bank stimulus from the U.S. economy: raise rates and unwind QE. Now, even Fed officials reckon this exit strategy may be impossible.
How to Know When NOT to Sell… and Other Great Advice
The investing expert who beat Warren Buffett’s Berkshire Hathaway shares the most important advice he learned from studying history’s greatest investors.
More thought-provoking reader feedback today, following Friday’s Diary about the 2017 recession.
Unless the real intention behind governments and their central banks creating money from nothing to buy stocks and bonds isn’t to gain total, legal control of every person, every business, every parcel of property, and every resource through stealth (instead of openly, as the Communists did, through nationalization) then a flight from bonds and stocks, by individual investors should also yield a sell off by the governments of the world to cut their losses on non performing investments.
This would be a welcome thing. It would show that government is not attempting a stealthy takeover of the entire planet, and mass enslavement of our whole species. And it would result in instant, global deflation.
– Sam H.
First, I really enjoy your newsletter. I am not a financial type. I am an engineering consultant. So, maybe I am missing something. But it seems to me that there is an easy way to get our country booming again.
All the large companies have large amounts of money parked offshore. If the politicians would just drop the repatriation fees from 35% down to, say, 5%… providing the money is invested in companies in the U.S…. it seems to me that our economy would soon be great again.
I know of so many great companies that would bring in billions of dollars a year. If they had some capital put behind them, we could make America great again very quickly.
– John M.
Love your stuff, Bill. But if you’re too busy to check the history details yourself, which I would certainly understand with all that you do, have an editor do it.
Pericles died of the plague in the first phase of the Peloponnesian War, long before the ill-fated invasion of Sicily that led to the downfall of Athens.
– David A.
Today, Chris Mayer, the only analyst Bill follows with his own family money, is kicking off an investment masterclass. The aim is to show you how to find tomorrow’s biggest stock market winners today… before anyone on Wall Street is paying attention to them.
This invitation-only event is free for Diary readers, so don’t miss your opportunity to learn from one of the best investors in the business.