A 1970s self-help guru’s hint why investors may be duped (again)

peterdiekmeyercontributor's picture

Contributed by Sprott Money. Click here for the original

America’s top forecasters missed the 2008 market crash, during which stock investors lost half their money. Now with stocks approaching bubble territory it looks they are again ignoring warnings signs. What gives?

The biggest red flag is the S&P 500 index, which groups 500 of America’s largest public companies and is trading near record highs. This despite a sluggish US economy driven by record government spending, borrowing and money printing.

In short, conditions look exactly like those that prevailed just before the 2008 financial crisis, when equities investors lost half their money in a matter of months.

So why haven’t the experts, many of whom are near-genius-level, ivy-league professionals, provided clear warnings about the risks in the system?

The S&P 500 index

Wisdom from a 1970s self-help guru?

One clue might come from consulting creative thinkers from outside the economics profession, like er…Robert Ringer?

Yes that Robert Ringer. The self-help guru, who in his 1970s best-seller Looking out for #1, outlined a useful template to use when assessing human behavior.

“All people act in their own interest all the time,” writes Ringer, who believes that people re-define self-interested actions to make themselves look virtuous.

What Ringer calls the “definition game” enables politicians, like recently-retired ex-Conservative Party leader Rona Ambrose who took home nearly $5 million in salaries and pension benefits for just 13 years work, to describe herself as a “public servant.”

Ringer’s “human nature group” theory in many ways explains modern human action better than Hobbes, Nietzsche and even Ayn Rand, yet appears dark when applied to individuals – even to politicians. However it has a strong basis in academic theory.

Foreign policy experts, for example, broadly accept that governments (which combine individual actions on a massive scale) act in their own interests all the time – and that they invent justifications as they go along. Otto von Bismark, a key innovator in international relations theory, describes this as realpolitik. If governments act that way, it should be no surprise that politicians - and the people who voted for them - would do so as well.

Are economics and financial forecasters "Looking out for #1?"
To apply Ringer’s theory to explain why expert, ivy-league-trained forecasters and regulators are all wrong, all the time when predicting recessions and stock market crashes, we would start by asking where their interests lie.

Consider:

Governments want you to spend
Ringer’s theory suggests that - however well-intentioned they are - that politicians’ main interests are not to do a good job, but to get re-elected, and, more broadly, to maximize their lifetime potential earnings and prospects.

If Ringer is right, then it should not be surprising that politicians would condone optimistic forecasts that encourage governments, consumers and businesses to borrow and spend because the resulting short-term economic activity would help them win the next election.

In this scenario accumulated debts would only matter to those politicians if the issue showed signs of imploding on their watch.

Financial Institutions want you to borrow
Economists and forecasters at the big financial institutions are among the world’s best trained and highly-respected. This despite the fact they too missed the 2008 crash and recession.

If we believe Ringer’s theory that financial sector forecasters are acting in their own interests all the time, this would suggest that they are likely working for bosses who are more concerned with generating new business than with being accurate. In that scenario the accuracy of their forecasts would be less important than how much activity they encouraged.

It would also suggest that any big bank forecaster that had a consistently and markedly bearish outlook would be fired.

Auditors and regulators prioritize rent extraction
Experts say that one of the American financial system’s major advantages is the high quality its watchdogs, such as the SEC, FINRA, FASB, public accountants, ratings agencies and other regulators.

Yet despite positive reports from all major public accounting firms and US regulatory bodies, all the major US banks and much of the auto sector had to be bailed out during the last financial crisis. None, have provided any warning of significant threats this time around.

Ringer’s “self-interest theory” would argue that the reason for this is that regulators are more incentivized to extract rents from the system than in serving the public.

If that is true, you would expect to find regulatory bodies adding rules (such as voluminous Dodd-Frank regulations), staff and boosting salaries, but also making sure that their departments would only have undefined responsibilities, so they would not be blamed if another crisis hits.

They could then use a subsequent crisis to ask the public for even more funds, powers and staff.

Speak nicely, but verify

If Ringer is right why doesn’t mainstream media, or even independent analysts, report this? One reason, is that in polite society, it is very hard to question someone’s motives. Particularly if you have to deal with that person regularly and he (or she) may one day have an opportunity to help you (or to extract payback).

The Economist magazine balances its posture by only questioning the motives of leaders of countries outside the western orbit like North Korea, China, Iran and Russia, whom they regularly describe as “solely interested in keeping power.” However the actions of Western governments, whom the magazine courts, are generally reported as acting for the public good.

Hedge your bets

The idea that a 1970s self-help guru’s theory provides a guide as to why another financial crisis may be inevitable seems laughable.

However the fact that our Harvard economics PhDs, industry CFAs and regulators are so consistently wrong suggests that they may be putting their interests before those of the public.

It also suggests that individual investors had better hedge their bets.

(Note: Mr. Ringer, who is nearing his 80th birthday, but continues to blog regularly at (http://robertringer.com/, did not respond to requests for comment).

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Hikikomori's picture

"America's top forecasters" are banging the drum about a market "correction", or crash these days.  I wonder if they're as wrong as they were in 2007?

taketheredpill's picture

 

 

I've had more than a few arguments with my wife, a family doctor, about Pharma companies motives.

She feels that Pharma companies would never play with data to maximize profits because it would impact patients lives.

I come from a buy-side background where I understand that sell-side "research" is biased and that analysts work in the best interests of themselves and the investment dealers to maximize profits.

All corporations are the same, even Pharma, and the pressure to game the system is directly proportional to the potential profits.  In the case of Pharma, the sums involed are massive, so....

 

Dr. Ben Goldacre (author of Bad Pharma)

http://www.badscience.net/

 

geekz_rule's picture

#AusterityIsCode4Looting

Friedrich Von Hayek, Austrian economist, proposed a 4 plank plan to establish economic "freedom". Of course, that "freedom" was only for the inbred elitists, the "rentier" class, the "new" feudal lords. These ideas support and justify the creation of absolute monopoly of the entire world's resources. Monopoly always was the real intention, the people's only real enemy. No wonder Hayek was found, then promoted by Rockefeller

"Competition is a sin" J. Rockefeller.

Hayek's plan: peddled as Libertarian, supporting "Liberty", but based on the inaccurate notion that "government" is evil and root of all corruption. A self serving lie. Government is the people, but the Monopolist's use "government" as a simple false target, a straw man, a distraction, a curtain to hide behind. In practice, government today, and for generations, is merely a puppet used as the force projector controlled by the money masters, pay to play, bought and sold to the highest bidders of the deep state.

Hayek's 4 Planks:

1) Deregulate global financial markets - DONE

2) Deregulate global trade - DONE

3) Bankrupt all sovereigns and nations with fiat (empty, unbacked, meaningless) paper "debt" (thereby neuter a nation's capability to enforce laws - eliminate the people's ability to defend against being consumed by these 1%) - DONE

 

then lastly, the kill shot:

4) Privatize Everything. create permanent rent payers of even the most basic necessities of life (Air, water, food, shelter). - Almost COMPLETE

 

Implemented globally by force, using their "super sovereign" (above the laws of nations) global banking control entities, WTO, WB, IMF, BIS, etc. and of course, actual militaries.

We are 99.99% there. 

we are already debt slaves to a global 1%, they have monopolized everything.

http://arxiv.org/PS_cache/arxiv/pdf/1107/1107.5728v2.pdf

this condition will not, nor can not, be changed with BS "elections" run by the very 1% we seek to depose.

Setarcos's picture

Yes.  I have always, well since I got to know a few things in depth, regarded Libertarians as dystopian believers in "individual freedom" and deniers that government is necessary.  In practice "free enterprize" and unfettered competition must lead to monopoly and mega corporations, ironically structured like "big government" with dictatorial heads, now about eight major corporations with dynastic individuals at their heads controlling over 50% of World trade (I can find references if necessary).

All along propaganda is produced which basically goes along the lines that private enterprize is good and government is bad, especially taxes levied by governments - a ploy guaranteed to suck most people in, because who does not want, say, a reduction of income tax, albeit that it would amount to very little for lower paid workers and that top earners(?) have ways to not pay taxes at all.  But here is the worst part:

Granted that pretty much all Western governments no longer even marginally represent the people and arguably should be overthrown, whilst it is almost universal to bewail taxation, at least taxes could be put to use for the common weal and are to some extent still, e.g. building and maintaining infrastructure (barely now), whereas hardly anyone complains about compound interest being charged by bankster corporations.  Indeed all mainstream economists, most "alternative" ones an innumerable pundits frequently talk along the lines that interest rates should be normalized from near zero percent, as if banks were not charging anything from 5% for mortgages to over 20% for credit/debt cards.  It's all a scam.  Consider that tax payers bailed out the banks in 2007-8 for instance, but it gets worse.  By having managed to get governments to borrow from private corporations over the last 250 years, notably Rothschild & Co, now just the interest on past loans (created out of thin air) gobbles up at least 50% of total tax revenue, so even if a government actually representing the commonwealth got elected, there is little or nothing available for spending for the common good.

J M Keynes has been wrongly vilified, e.g. if he was alive to hear Krugman, he would be aghast.  His core proposition was simple, tax quite heavily during good times and save the surplus to ease the bad times.  That has not really been possible since 1913 and totally impossible since about 1971 and the rise of monetarism/financialism.  With Keynes (and J K Galbraith) deficit/borrowed spending is anathema, except maybe briefly in some emergency, though I can't imagine what that could be, if governments issued sovereign currency.  For sure any adoption of what I am outlining - less well than many others - requires responsible governance, but whereas there is always some chance that electors could hold their "representatives" to account, that can never be the case with private corporations, in which not even ordinary shareholders count.  As far as I am aware, Vladimir Putin and his team have been and are gradually implementing what I have only alluded to.  I think that the Russian Central Bank is now almost completely back under state control and, despite continued reports basically stuck in 1990s mode, partly BECAUSE of sanctions,  Russia has one of the best-performing economies and virtually no public debt.  I rest my imperfectly put case.

 

 

 

shovelhead's picture

Maybe you should actually READ Hyack instead of that absymal summary of a mysterious 4 planks that some cockeyed hack came up with.

There's a lot that can be argued about Hyack's theories but none of these "4 planks" have anything to do with what he wrote.

Govt. is corrupted simply by the mechanisms that allow it to BE corrupted. This is not a mistakern notion but clear fact. How you can deny that is astonishingly simplemided. When a corporation or private interest group can legally hand over hundreds of thousands of dollars to legislators (in the guise of campaign contributions) to write favorable laws, what do you suppose will be the natural outcome?

Hyack is entirely correct in this instance.

The rest is muddleheaded gobbdygook unworthy of a response.

daedon's picture

I wonder if the 1920s doom and gloom market catastrophe pundits

claimed this same narrative in the Weimar Republic just before the

mother of all Hyperinflations.  After all, the unwavering value of FIAT

is as constant as the speed of light, right ?

GooseShtepping Moron's picture

Ringer’s “human nature group” theory in many ways explains modern human action better than Hobbes, Nietzsche and even Ayn Rand.

For the love of God. It's hard to take seriously somebody who would rank an hysterical bluestocking like Ayn Rand as superior to Hobbes and Nietzsche (two giants of Western thought), let alone subordinate them to Robert Ringer.

peterdiekmeyercontributor's picture

I'd say that - whatever her other faults - that Ayn Rand's "The virtues of self-interest" does provide a better guide to undertanding how humans will act than anything by Hobbes (who wrote essentially to please kings and to avoid getting his head cut off) or Niezsche (whom few today can even translate, let alone understand).

 

 

tangent's picture

The giants that lead this run-up are tapped out. Google says they are more interested in racial diversity than technology. Its like that moment when Yahoo said that they are not a search engine company and they proceeded to train wreck to near bankruptcy. Apple ran out of rich people who can't handle devices with more than one button.

The next revolution is in cryptocurrency but that seems to be burning as much value (in electricity) as it is creating at the moment. So I think we will have a recession. There is also the very serious structural issue that future jobs are much more focused on intelligence than past jobs and therefore we literally have people who cannot survive without hand-outs. The two jobs in the future will be AI programming and robot engineering. Thats it. 70 years from now those two jobs will be the two jobs to choose from. There may be entertainment for a while until the AI is good enough.

Arnold's picture

Funeral Homes for Urn Viewing.
Banquet Hall in the rear.

Pernicious Gold Phallusy's picture

There will also be extremely high demand for baby-boomer-bottom wipers.

DjangoCat's picture

The author points out that the globalist rag "The Economist" "balances its posture by only questioning the motives of leaders of countries outside the western orbit like North Korea, China, Iran and Russia, whom they regularly describe as “solely interested in keeping power.""

The Economist has about as much credibility as the "Toilet Paper of Record" The New York Times.

illuminatus's picture

"the fact that our Harvard economics PhDs, industry CFAs and regulators are so consistently wrong suggests that they may be putting their interests before those of the public."  

 I think we can count on that!

Let it Go's picture

I'm a big fan of Ringer and his 10 Rules Of Success have hung on my office wall for two decades. Thanks for the link to his blog. His opinions are always very interesting.

Fourmyle's picture

And of course if they are wrong, they are blameless as long as they are no more wrong then their peers. "No one could have seen that coming"

Umh's picture

We do not have to listen..."The scientists of today think deeply instead of clearly. One must be sane to think clearly, but one can think deeply and be quite insane." -- Nikola Tesla

DanDaley's picture

Great quote -sound like a lot of liberals I know...a LOT!

GRDguy's picture

Knowing how highly our stock markets (and everything else) are manipulated, perhaps TPTB plan on manipulating our stock markets the same way they've done in Venezuela this year.  40,000 to over 194,000.  Just sayin'.

https://tradingeconomics.com/venezuela/stock-market

effing idiot's picture

NO, that's not manipulation, that's just what happens when your currency is better used as toilet paper

GRDguy's picture

And just who manipulated the currency into toilet paper. 

Venezuela has a central bank, too.

The Real Tony's picture

It's proof positive small countries can devalue their currencies yet larger countries can't. A point the entire world seems to miss for whatever reason I don't know.

Herodotus's picture

The United States has devalued its currency by more than 96%.

shovelhead's picture

It's a lot more than that. That's just the visible domestic devaluation.

Being a reserve currency let's you spread it all over the globe.

Our only saving grace is that a dollar is more trusted and traded (for no good reason) more than any other currency.