weekly investment insight 08232021

 

1. Are you a Dunning-Kruger? How good do you think you are?

2. Central Banks cannot really taper with this slowdown.

3. The Dollar’s Debt Trap.

4. When the ducks are quacking, feed them. Stock issuance breaks all records.

5. Wild Divergence. The gap between World and Asian equities has never been wider.

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1. Are you a Dunning-Kruger?

The mismatching of actual abilities vs perceived gives rise to a bizarro-world in which those who know the least are often the most outspoken, convicted and never-in-doubt.


https://twitter.com/Hedgeye/status/1427606565318807592

 

Dunning-Kruger describes the process whereby people with low expertise in a given subject rate themselves highly in that area while those who are expert in that same subject tend to both underestimate their own abilities and overestimate those around them. This is known as illusory superiority, and it explains how we tend to judge ourselves better than others to an extent that violates the laws of math. For instance, 88% of drivers consider themselves above average, and those with the least abilities are most likely to overrate their skills to the greatest extent.  

As David Dunning wrote in his 2005 book on self-awareness entitled Self-Insight: Roadblocks and Detours on the Path to Knowing Thyself, “If you’re incompetent, you can’t know you’re incompetent. The skills you need to produce a right answer are exactly the skills you need to recognize what a right answer is.”

MIT researchers published a paper in the journal Science in 2018 that investigated social media’s propensity to spread false news. Study author Soroush Vosoughi, an MIT data scientist, had this to say, ‘It seems to be pretty clear that false information outperforms true information’.

Now, combine Dunning-Kruger with that MIT research and you have the foundation for a twisted, conflicted world in which those with the least expertise and who are more often wrong are among the most vocal and most convicted and their views are the ones most amplified across social media channels and latched onto by other Dunning-Krugerites eager to spread the gospel of novel [false] narrative.

 

2 Central Banks cannot really taper with this slowdown.

“Recent macroeconomic data from the United States should worry us. Amid the reopening and the biggest fiscal and monetary stimulus in recent history, and with all the possible tail winds from policy decisions, consumer confidence has plummeted to the lowest level since 2016.

Retail sales have fallen sharply again in July, and the employment or industrial production data are far more than disappointing considering the level of stimulus and that GDP has returned to pre-pandemic level.

https://www.dlacalle.com/en/central-banks-cannot-really-taper-with-this-slowdown/

 

3. The US Dollar’s Debt trap. 

“On the fiftieth anniversary of the Nixon Shock, this article explains why fiat currencies have become joined at the hip to financial asset values. Tapering QE will not be possible. The bluff must be to pretend that economic conditions have improved enough to support markets without as much as $120bn monthly being injected into them, without any actual intention of tapering.

https://www.goldmoney.com/research/goldmoney-insights/the-dollar-s-debt-trap

 

4. When the ducks are quacking, feed them. 

https://www.gmo.com/americas/research-library/bubble-signs-stock-issuance/

 

“Stock issuance in 2021 is also setting a new record, blowing away the last high set in the run-up to the Tech Bubble. This is a dubious item to celebrate if history is any guide.

We’re not just talking SPAC (Special Purpose Acquisition Company) phenomenon as yet further evidence of speculative behavior. These “blank check” companies may literally have no business plan, no sales, no earnings – heck, investors don’t even know what industry they’re buying into. Yet SPACs are selling like hotcakes. More SPAC capital has been raised in the first six months of 2021 than in the past 20 years, combined. That is concerning enough. But SPACs are only part of the problem. Record-high stock issuance is also emanating from seasoned companies – in other words, everybody’s getting in on the party. See the chart above.”

 

5. Wild Divergence. The gap between World and Asian equities has never been wider.

Policy and markets, East and West, have diverged significantly in 2021.

https://twitter.com/TaviCosta/status/1428865651431542786

 

 

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