From Eric Peters, CIO of One River Asset Management
Dusted off an anecdote from my discussion with a Nobel Laureate on thought viruses, memes, idea-microbes, contagion (see below). After generations of relative social calm, when the things that drove markets were petty bumps in unemployment/inflation and periodic crises of our own creation, we must reorient our trading/investing around societal narratives. Because, as much as those hoping for a return to normalcy try to see today’s DC drama as the final chapter in a short story, the truth is that America’s self-destructive odyssey has only just begun.
And like all our great nation’s harrowing wanders through the wilderness, the reward will be renewal - but not for a decade.
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Anecdote (Feb 5, 2017): “The only ones who don’t seem to understand are the economists,” said the economist, a Nobel Laureate. He was discussing the importance of narrative in society.
“Economists talk about interest rates, price-to-earnings ratios, and obscure formulas as if we’ve arrived from a different planet. These things don’t drive people. Stories drive people.”
Of course, economists may not know how to tell a good bedtime story, but they sure can put a room filled with middle-aged nerds to sleep.
Which may explain why sociologists, anthropologists, linguists and just about every other scientific group studies the importance of narrative, but not economists.
“I’m particularly intrigued by something coming out of the medical field called Mathematical Epidemiology,” he said, using a really complex term to describe the spread of infectious disease. “Scientists are becoming aware of the spread of thought viruses, memes, idea-microbes. It turns out they’re contagious just like diseases.”
The reason that ‘going viral’ is creeping into our language is that it’s become our reality. It’s how fake news spreads, infecting us all.
“The models have two inputs; contagion rate and recovery rate. Epidemics burn themselves out because people recover and become immune.” Idea-epidemics follow a similar path.
“Populism in the 1930s was an idea-epidemic that led to Fascism. The horrors of WWII sparked the spread of globalism, multi-nationalism, multi-culturalism. And these ideas appear now to have expended themselves,” he said, pivoting to The Donald. “Trump is a story teller. He’s an example of narrative economics, the personification of a story.”
And the economist paused, examining both hands. “He might be bad or he might be good. He has no political experience. He talks openly, rejects political correctness. And he throws out theories that might even be right – we really just don’t know – because we’ve never heard them before.”
Which is today’s narrative.