October 16,
2017
The Markets
There’s a
new kid in town: narrative economics.
Last week, Richard Thaler was
awarded the Nobel Prize in economics. His work in behavioral economics and
finance recognizes not all economic and financial decisions are made after
rational reflection. In Nudge, he
wrote:
“The workings of the human brain
are more than a bit befuddling. How can we be so ingenious at some tasks and so
clueless at others?…Many psychologists and neuroscientists have been converging
on a description of the brain’s functioning that helps us make sense of these
seeming contradictions. The approach involves a distinction between two kinds
of thinking, one that is intuitive and automatic, and another that is
reflective and rational.”
Yale professor Robert Shiller,
another Nobel laureate in economics, is exploring a field of study related to
Thaler’s. It’s called narrative economics. Narratives are the stories we share
with each other. They are fuel for conversation and popular narratives often
become viral. During a presentation at the University of Chicago, Schiller
explained narrative economics is “the study of the spread and dynamics of
popular narratives, the stories, particularly those of human interest and
emotion, and how these change through time, to understand economic
fluctuations.”
Today, a popular narrative in
financial circles focuses on Professor Shiller’s cyclically-adjusted price-earnings
(CAPE) ratio, which suggests the market may be overvalued. Barron’s reported, “The CAPE, which is based on average
inflation-adjusted earnings over the trailing 10 years, stands at 31, versus
32.5 in 1929 and 44 in late 1999.”
If stocks are overvalued, why do
investors keep buying shares? It’s a question narrative economics hopes to help
answer in the future.
Data as of 10/13/17
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard
& Poor's 500 (Domestic Stocks)
|
0.2%
|
14.0%
|
19.7%
|
10.8%
|
12.1%
|
5.1%
|
|
Dow
Jones Global ex-U.S.
|
1.7
|
21.3
|
21.8
|
5.0
|
5.4
|
-0.9
|
|
10-year
Treasury Note (Yield Only)
|
2.3
|
NA
|
1.7
|
2.3
|
1.7
|
4.7
|
|
Gold
(per ounce)
|
3.0
|
12.1
|
3.1
|
1.9
|
-5.6
|
5.5
|
|
Bloomberg
Commodity Index
|
2.4
|
-1.8
|
-0.4
|
-10.3
|
-10.0
|
-7.1
|
|
DJ
Equity All REIT Total Return Index
|
1.6
|
8.4
|
8.8
|
10.4
|
10.3
|
6.1
|
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg
Commodity Index returns exclude reinvested dividends (gold does not pay a
dividend) and the three-, five-, and 10-year returns are annualized; the DJ
Equity All REIT Total Return Index does include reinvested dividends and the
three-, five-, and 10-year returns are annualized; and the 10-year Treasury
Note is simply the yield at the close of the day on each of the historical time
periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com,
London Bullion Market Association.
Past performance is no guarantee of future results.
Indices are unmanaged and cannot be invested into directly. N/A means not
applicable.
self-driving cars, life-like robots, artificial
intelligence, and video phones. Millennials and members of Gen Z may
find the original Blade Runner movie
a bit dated. After all, many of the tech innovations imagined have become a
part of our daily lives and others, like mood organs, are in the works.
Mood organs were among the human
enhancements imagined by Philip Dick in Do
Androids Dream of Electric Sheep? (The book upon which Blade Runner was based.) A recent c|net.com article explained:
“Dick doesn't describe the design
of the mood organ or how it works, only specifying that it can stimulate or
sedate the user's cerebral cortex. Users simply dial up the emotion they want,
such as 481 (awareness of the manifold possibilities open in the future) or 594
(pleased acknowledgement of a spouse's superior wisdom).”
Neural implants are a reality
already, although they’re not used to control human emotion. Thousands of
people with Parkinson’s have implants to manage tremors and applications to
help with epilepsy and depression are being explored, according to IEEE Spectrum.
Medical treatments are not the
only applications for neural implants. Elon Musk is developing ‘neural lace,’ a
brain-computer interface (BCI) that may be injected into the human body, travel
through the bloodstream, and settle over the cerebral cortex. While neural lace
someday may be used to treat or diagnose neurological issues, The Economist reports Mr. Musk has
argued, “human beings need to embrace brain implants to stay relevant in a
world which, he believes, will soon be dominated by artificial intelligence.”
Musk is not the only
entrepreneur pursuing brain interfaces. IEEE
Spectrum reported Mary Lou Jepsen, an MIT alumnus and tech executive, has
founded a company which is working on non-invasive BCIs “for imaging and
telepathy (the latter could conceivably be done by reading out thought patterns
in the brain).”
It’s possible
the idea of humans with superpowers may seem quaint to future generations.
Weekly
Focus – Think About It
“The real question is, when will we draft
an artificial intelligence bill of rights? What will that consist of? And who
will get to decide that?”
--Gray Scott, Futurist philosopher
Best regards,
Womack
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*
Government bonds and Treasury Bills are guaranteed by the U.S. government as to
the timely payment of principal and interest and, if held to maturity, offer a
fixed rate of return and fixed principal value.
However, the value of fund shares is not guaranteed and will fluctuate.
*
Corporate bonds are considered higher risk than government bonds but normally
offer a higher yield and are subject to market, interest rate and credit risk
as well as additional risks based on the quality of issuer coupon rate, price,
yield, maturity, and redemption features.
*
The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities
considered to be representative of the stock market in general. You cannot
invest directly in this index.
*
All indexes referenced are unmanaged. Unmanaged index returns do not reflect
fees, expenses, or sales charges. Index performance is not indicative of the
performance of any investment.
*
The Dow Jones Global ex-U.S. Index covers approximately 95% of the market
capitalization of the 45 developed and emerging countries included in the
Index.
*
The 10-year Treasury Note represents debt owed by the United States Treasury to
the public. Since the U.S. Government is seen as a risk-free borrower,
investors use the 10-year Treasury Note as a benchmark for the long-term bond
market.
*
Gold represents the afternoon gold price as reported by the London Bullion
Market Association. The gold price is set twice daily by the London Gold Fixing
Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy
ounce.
*
The Bloomberg Commodity Index is designed to be a highly liquid and diversified
benchmark for the commodity futures market. The Index is composed of futures
contracts on 19 physical commodities and was launched on July 14, 1998.
*
The DJ Equity All REIT Total Return Index measures the total return performance
of the equity subcategory of the Real Estate Investment Trust (REIT) industry
as calculated by Dow Jones.
*
Yahoo! Finance is the source for any reference to the performance of an index
between two specific periods.
*
Opinions expressed are subject to change without notice and are not intended as
investment advice or to predict future performance.
*
Economic forecasts set forth may not develop as predicted and there can be no
guarantee that strategies promoted will be successful.
*
Past performance does not guarantee future results. Investing involves risk,
including loss of principal.
*
You cannot invest directly in an index.
*
Stock investing involves risk including loss of principal.
*
Consult your financial professional before making any investment decision.
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Sources:
https://www.amazon.com/dp/014311526X/ref=rdr_ext_tmb (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/10-16-17_Nudge-Improving_Decisions_About_Health_Wealth_and_Happiness-Footnote_2.pdf)
http://www.barrons.com/articles/who-says-this-stock-market-is-overpriced-1507956689?mod=trending_now_3 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/10-16-17_Barrons-Who_Says_this_Stock_Market_is_Overpriced-Footnote_4.pdf)
https://www.economist.com/news/science-and-technology/21719774-do-human-beings-need-embrace-brain-implants-stay-relevant-elon-musk-enters (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/10-16-17_TheEconomist-Elon_Musk_Enters_the_World_of_Brain-Computer_Interfaces-Footnote_7.pdf)
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