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Fake News Is Not New! It is a Practice That Has Been Used by Traders, Banks and Large Investors For Hundreds of Years

Fake news is not NEW. It has been used for hundreds of years to mislead or mid-direct in times of war, crisis and when big money is on the line. It's just that there is so much news in todays media rich world, it is hard to know who is telling the truth in any given moment. Everyone has an agenda. Whether it be a CEO, investor, hedge fund, public health official, governor, news channel or president. Everyone has something to gain or lose in a given situation and to whatever degree it is serving someone's personal, business or institutions goals or ambitions, bending the truth to telling outright lies will depend on how much is at stake and how willing someone is to cross ethical or moral lines.

As an investor, it is important to pay attention and ask the hard questions when reflecting on what any particular source of information is saying about a company or market. What is being said, by whom and why are matter of fact questions to be asked. These questions along with a discerning perspective can save you money and make you money, stop you from making rash decisions and help you stay rational.

Below are just a couple of examples to illustrate these points. We could provide many more. These examples are high profile examples of what we are referring to.

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Often, Investing in the Markets is Knowing Who To Listen to & Who Not to Listen To

Jeremy Grantham

There is a saying that "It's not what you know" but "Who you know" in life, that is the most important thing for making progress. There is of course truth to this saying. Getting to the right people for any particular endeavor in life is a combination of research, persistence, creativity, connections and luck as well as a good dose of courage. Fearless entrepreneurs and investors have persistence and courage in spades and you only need to read a few biographies to know that meeting the right people can be a process that takes a few rounds of trial and error. Their vision of "what can be" or "What is" drives them in their pursuit of success. Everyone can do well with the right mentors.

Today, we are going to write less and let you listen to Jeremy Grantham, a veteran investor whose bio is below. In this interview, Grantham share his views on the markets as well as US and global equities. It is well worth listening to.

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Science, Markets & Reality. Who is on First?

In our last blog post which we published last week, we wrote about the Efficient Market Hypothesis [EMH] and whether it was true, half-true or half-false. We fielded different responses to this post, half of which stated "of course, markets are inefficient" and the other half stating "they are efficient most of the time". We pointed out that these theories do not take "human nature" fully into account. History charts a series of irrefutable market bubbles and busts across multiple asset classes. When you are actually in a bubble or bust period, it can feel like conditions will go on indefinitely. The law of market cycles sais otherwise.

Over the last two months, the markets have charted a strong recovery track defying the hard hitting economic realities of the impact of the coronavirus. They have been - or so it appears - in denial of what all medical specialists and virologists are saying, which is that the coronavirus will inevitably re-surface in the fall of 2020, if it even disappears or lessens in-between. There are no maybe's, it's a 100% guarranteed. There is a reason why Operation Warp Speed [OWS], the government funded program to fast track the development of a vaccine, as well as its manufacturing and distribution, was established. Without a vaccine, a large sector of the general population are not going to get back to life, work and patterns of consumption as they were pre-coronavirus. The virus is highly transmittable and without vigilant precautions and collective discipline, we are only going to make it easier for it to find a path to its next host.

It is not a secret that the virus has not been contained and cannot be effectively contained without such collective effort. It is not a matter of dispute among medical experts. Until today, the markets have seemingly been ignoring this fact which has been continuously stated by medical experts. Even Jerome Powell, the chairman of the federal reserve, when interviewed a few weeks ago about the impact of the virus and what the Fed was doing, talked about various scenarios which would of course be worse he said "if the virus were to return in the Fall". But there are no "If's" from the perspective of every virologist on the planet. Did this fact go un-noticed by Mr Powell? We think this is unlikely.

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Efficient or Innefficient Markets - Which One Is It?

What Is the Efficient Market Hypothesis (EMH)? Is it True or False, Half-True or Half-False?

The efficient market hypothesis (EMH), also known as "efficient market theory" states that share prices reflect all known information in the current moment and that ergo they are valued fairly. This in turn infers that consistent alpha generation cannot be achieved and that it is also fruitless to try and beat or out-perform the markets.

According to the EMH, stocks always trade at their fair value. Therefore, expert stock selection or market timing is a myth being chased by investment bankers, analysts and brokers at the expense of investors. Why should Wall Street be paid high fees if they are not outperforming the market. EMH states that the only way an investor can potentially beat the market is by making riskier investments. A low cost ETF or balanced fund that tracks the market is all that most investors need.

EMH or efficient market hypothesis fails however to take one key factor into account, namely human beings. Human beings are not rational. Stock market or housing or art bubbles and busts are littered along the path of progress in human history. They come and go. They repeat, again and again. We can probably go back a lot further in history to illustrate this point but we will start with what was referred to and more commonly known as "The Dutch Tulip Mania" in the 17th century when tulips reached absurdly inflated prices and then collapsed in 1637. Fast forward to the roaring 1920's and crash of 1929 and then to the dot.com bubble leading up to 2000 and the housing bubble of 2007. You get the point. Every one of these bubbles was fuelled by human "greed" and an infinite supply of hope that things would keep getting better or that stocks or property would go higher and higher. Not exactly rational given that the battle hardened and tested "theory-not" of "market cycles" which states that all markets whether it be commodities, stocks and collectables move in cycles.

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US - China Tensions. The Battle For Global Supremacy, Security & Influence

China USA TensionsGlobal tensions between the USA and China were already a "thing" prior to the Coronavirus rearing its ugly head. However, in a post-coronavirus world that has severely impacted economies, supply chains and trade, the sheer extent to which countries - in particular the USA - are dependent on vital goods such as key ingredients for pharmaceuticals, medical equipments and auto-parts for example, has been highlighted in dramatic fashion. Significant sectors of US industry have sacrificed "price advantages" over "security" in a long established US led transition of exporting manufacturing and jobs to China.

In a world where China and American trade relations may continue to sour and worsen, such dependency can no longer be viewed as a smart play. China has never been viewed as a fair player. They play to win at all costs. The mis-handling of the coronavirus outbreak has not endeared China to the world. The US which has suffered the worst impact of the coronavirus worldwide and where the governement was slow to take it seriously, has decided to blame the WHO (World Health Organization) for not being more circumspect about what was happening in China and more suspect about information regarding the outbreak and therefore wasting precious time.

The US pulled its funding from the WHO much to the chagrin of its allies while China was more than happy to cough up a couple of billion dollars to plug the funding gap and win more favor. An investigation is now underway within the WHO. It's fair to say that very few countries were prepared for a pandemic. It was never a matter of "if' but "when" and most of the world chose to ignore the matter of preparedness. That changes only in the instance of a pandemic hitting and by the time that happened - as we have all witnessed - it was already too late.

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1600 South Main Street, Suite 190
Walnut Creek, CA 94596
Phone: 925-906-9800
Fax: 925-906-9884
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Hawley Advisors is an investment advisor, registered with the State of California. Any investment ideas or strategies on this website are for the purposes of education and general information only and should not be construed as specific investment advice. For more information about our firm please check the SEC Public Disclosure website: https://www.adviserinfo.sec.gov/

 

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