A Tsunami of Technological Transformation
“This has been a week of politics and media. That is the definition of a bad hair week, gazing at the catered coifs of pols and TV pundits and inhaling the halitosis of their ideas.”
I wrote that 2002, but I find it fitting today as well.
The air today is full of toxic fumes from negative interest rates, socialist mantras of “new monetary theory,” delusions of trade war triumphs, and efforts to blame conservatives for bad weather.
All while American universities become all sicklied over by a pale cast of green goo.
The reason prevailing economic and political theories are so difficult to grasp is that they find no confirmation in reality, like debates over pinhead angels or the “intelligence” of computers.
So to meet the investment challenge over the next few years Americans will have to fumigate the halitosis and face the rigors of the real world.
Real economics, as the Austrian titan Ludwig von Mises explained, “did more to transform human thinking than any other scientific theory before or since.”
“With good men and strong governments everything was considered feasible,” he continued. “[But] now it was learned that in the social realm there is something operative which power and force are unable to alter and to which [politicians and bureaucrats… and investors!] must adjust themselves if they hope to achieve success, in precisely the same way as they must take into account the laws of nature.”
In other words, as econo-smog fills the air, it will be a struggle to come to terms with these realities. Only a minority will make it. But to them will go the vast bulk of investment returns.
The key to reaping the most rewards? Always focus on the future…
Finding Wisdom in Waves
I made a personal escape from the econo-smog about a month ago on a luminous beach in Bali.
Giant blue waves crested offshore and swept onto the sands. From the windows of my resort, I looked out at the waves, recognizing they were governed by laws that have not changed in billions of years.
I knew that if I tried to plunge into them I would feel buoyed up for a while, as on crests of central bank money. But I would soon be hurled mercilessly on to the sand.
Such laws in various permutations govern all economic life — regardless of legislation and edicts issued by congresses and parliaments, whether democratic or despotic, around the globe.
Now, I believe that stock market movements are largely wave phenomena.
The power of a wave rises with the square of its amplitude or height. So large and long investments are exponentially more significant than a long series of small trades.
In other words, wavelets in any number will never add up to the power of a tsunami.
Yet that’s exactly what’s dominating the markets right now — and why it’s more important than ever to keep looking forward.
Ignore the Flash-Boy Whirlwind
We are now seeing prevalent quantitative investment techniques that increase trading velocities to the gigahertz — billions of cycles a second — in order to reap a flash-boy whirlwind of tiny gains.
Unlike insider trading, which actually increases market knowledge and is mostly beneficial, quantitative trading is simply financial froth.
As increasing shares of so-called investments take these insubstantial forms, the result is a hypertrophy of finance.
Economic growth stagnates, inequality mounts, and capitalism becomes a scandal of money.
Bottom line: Quant investors are adapting to old knowledge. They’re looking in the rear view mirror. Ordinary investors should leave the surf and froth to the flash boys, and seek the tsunamis of new technological transformation.
We’ll be putting my theory of new waves and technological movements to the test in coming weeks of prophecies.
Editor, Gilder’s Daily Prophecy