Wednesday, 20th June 2018
Not half as clever as we think….
The latest research serves to support a suspicion I have held close to my chest for some considerable time….
The world is getting dumber with each year that passes….
Norwegian researchers recently analyzed the IQ scores of Norwegian men born between 1962 and 1991….
What they found is that the IQ figure has been steadily declining in the men born since 1975….
- Across the board….
And before you start thinking that decreasing levels of intellectual ability is a malady that only affects Norwegian men, let me put you straight….
Similar studies in Britain, Denmark, Estonia, Finland, France and Holland produced the same results….
IQ scores are on a downward trend across the board – for men and for women….
In short, we are not as smart as we might like to think. Nor are we as smart as we once were….
If the younger generations want to smarten back up, the Norwegian researchers suggest that improved education, better nutrition, more reading of books and less time spent online will help do the trick….
But try telling that to your academically stressed-out teenager as he heads off to McDonalds with his eyes glued to the screen of his mobile phone….
- The rewards of vision and clarity?
Things are never entirely what they seem. And people are often not half as clever as you might at first believe….
Back at the latter end of 2017, the early movers in the Bitcoin market looked like dyed-in-the-wool geniuses….
Those people, we were told, had nous and savvy and vision. They looked deep into the future and saw the big gains coming….
They got on Bitcoin when it was real cheap because they discerned the signs of the times. They understood instantaneously that change was afoot. They saw without delay where it might lead…
They weren’t confused or dumb-founded or paralyzed by bewilderment like the rest of us mere mortals. They were clear-minded and incisive – certain of the ultimate outcome….
And their clarity of mind was rewarded by an asset that rose in value to the tune of 581% between July 17th and December 11th last year….
At least that’s what it looked like at the time. And, in some cases, it might even have been so….
- Or was it just concerted price manipulation?
But more research results produced last week suggest that last season’s astronomical Bitcoin gains were not only the richly-deserved reward of smart-thinking….
But, also the result of very questionable activity in the Bitcoin market….
John Griffin, a finance professor at the University of Texas, has published a paper that concludes last year’s Bitcoin gains were more the result of the concerted price manipulation actions of a few big players than they were the result of genuine demand amongst investors….
Even though I was born well in advance of 1975, I lack the intellectual firepower necessary to understand all the many ins and outs of the techniques used by the price fixers….
But it amounts to this: according to Griffin and his co-authors, some people worked out how to artificially push up the price of Bitcoin and other cryptocurrencies on the Bitfinex exchange using a secondary virtual currency called Tether….
Whoever those people were, you can’t deny they are clever….
Clever in a sneaky, underhanded and maneuvering way rather than clever in a genuinely brilliant, far-sighted and visionary way….
But still clever – and no doubt vastly better-off because of their actions….
- The world’s greatest investors….
Investors who have had money in the stock markets over the last decade are feeling quite clever too….
They look at themselves in the shaving mirror each morning and each one sees one of the world’s investment greats staring back out….
Despite their best efforts, no doubt, they have hardly managed to put a foot wrong in 10-years….
Every decision has been the correct decision. Every penny of capital has been allocated in the right space….
Hardly a single investment has turned bad over the period. And those few that have, they have been more than adequately compensated for by gains elsewhere….
Taken together, across an entire decade, everything has increased in value. The FTSE 100 has almost doubled in value over the period. Pick any other Index in Britain, Europe or the US, and the gains will be just as good or better still….
A decade-long buoyant global market in stocks has made money for and geniuses out of tens of thousands of investors – even those that have no idea what they are doing. In the stock market we’ve seen evolve since 2009, even a below-average student could produce Oxbridge results….
And each of these individual investors wakes up every morning, puffs out his chest and secretly believes, deep in the pit of his heart, that he is indeed an undiscovered Warren Buffett….
- Unwitting beneficiaries….
We hate to shatter illusions here at Money Truths. But we must do what it says on the tin and tell the truth as we see it….
Far from being investing geniuses, stock market investors over the last decade have been the unwitting beneficiaries of the loosest global monetary policy in recorded history….
Central banks have been printing billions in new money (or, more accurately, bond buying) – quantitative easing on a scale never previously seen….
And interest rates have been in the basement for the entirety of the last decade – ensuring that credit is cheap, plentiful and always in demand…
When money costs little or nothing to borrow, governments, businesses and consumers will not hesitate to step forward and borrow it – using it to buy assets of one form or another….
This flood of new money into asset markets serves to force up prices, it produces a return on money that costs nothing to borrow and it leads to more of the same – in the case of the last decade, a lot more of the same….
Stock markets are not flying high because listed businesses are doing so well. They are flying high on the back of an ocean of newly-minted money relentlessly flooding into the market….
Current stock-market values are more about deceit than they are about anything to do with the cleverness of government, central bankers, businesses or individual investors….
We wonder how clever investors will feel when the market undergoes the big correction that must happen at some point….
- The party is almost over….
The Americans are raising interest rates and turning off the spigots of quantitative easing….
The Europeans are sending out signals saying that they want to draw a line under central bank bond-buying too….
The Americans and the Europeans want to get things back to normal. Or something that is moving in a direction that leads back to normal….
We think Mark Carney and the Bank of England would like to move that way too. Toward normality. We believe that Mark Carney would like to raise interest rates….
But he can’t. Not at this point. Even a small rise in the base rate could derail the fragile economic ‘recovery’ we are told is taking place in Britain today….
The Monetary Policy Committee meets again this week. The interest rate is expected to remain as it is.
But low interest rates cannot remain in place forever. Not without causing market distortions as dangerous and unmanageable as those the pointy-heads seek to avoid by maintaining the ground-level interest rates in the first place.
Sooner or later the plug must be pulled. And the stock market is one place out which value will drain when that happens….
None of us – not even the smart ones born before 1975 – is likely to feel too clever when that day comes….
That’s how it looks from here….
All the best,