Dear Reader, Humans are suckers for a good story. Often, the children’s story character you identified with most as a kid has a deeply formative impact on your personality as you get older. Especially your sense of morality. People who dressed up as Robin Hood when they were five have a scepticism of authority and an intense sense of justice. Peter Pan fans have a sense of adventure and fantasy. The Jungle Book and The Lion King are about friendships, belonging, and community. How we see ourselves determines which narratives we are likely to see in a sequence of events. Different people will notice entirely different things about the same news item. And interpret the meaning and cause of the events entirely differently. And the narrative we see in a sequence of events goes on to determine how we behave when confronted by it. That is why the same event can trigger entirely different behaviours in people. In his recent issue of Jim Rickards’ Strategic Intelligence Australia, Jim explores how all of this moves financial markets. Here’s my favourite section: ‘At the outbreak of the First World War, stock markets crashed and most major markets were actually closed for months. The narrative was that European nations were dumping assets to buy gold to provide financial support for the war. In contrast, at the outbreak of the Second World War, stock markets rallied (and markets were not shut down) because investors perceived that industrial output for war fighting would lead to huge profits at companies like Ford and Boeing. ‘In both cases, war was a catalyst and narratives determined investor behaviour, but the narrative itself and investor reaction moved in opposite directions in 1914 and 1939. This shows the importance of remaining nimble and open-minded as new narratives emerge.’ In other words, in financial markets — and in life generally — you don’t just need to be right about events, you also need to be right about how people will interpret them. And how they will act as a result. Soaring house prices were not at the top of my list of likely consequences from an economic crash and pandemic…and yet, in hindsight, the narrative of a ‘great escape’ from cities may explain the global house price boom. So, it seems investors cannot ignore stories. Jim explains why this is true, how to think about narratives in financial markets, and which narratives are about to die a dangerous death — to be replaced by something a lot less optimistic. How can you access this powerful new issue? Watch this. Regards, Nick Hubble, Editor, Strategic Intelligence Australia |