Man Wants to Be Tricked, Deluded and Misled: Lies We Believe

The origin of Latin is thought to date back to 1000BC.

However, it wasn’t until 100BC that the Romans organised their language into what we know as Classical Latin.

Classical Latin was the language used by philosophers, poets and scholars.

One of those scholars was Marcus Terentius Varro (116–27 BC)

Varro’s writings are credited with being the origin for the Latin saying…

Mundus vult decipi, ergo decipiatur

The English translation is…

The world wants to be deceived, so let it be deceived

While the world has changed beyond recognition over the past 2,000 years, Varro’s observation proves that one thing hasn’t changed…human nature.

Man wants to be tricked, deluded and misled.

Throughout history man has willingly believed in the totally unbelievable.

In the 1630s, a single tulip bulb was worth more than a house.

In the 1920s, people rushed to invest in Charles Ponzi’s offering of a 50% return within 45 days.

In October 1929, Yale Professor Irving Fisher told the world that ‘shares have reached what looks like a permanently high plateau.

Adolf Hitler was a master in the art of deception. He proudly boasted that…

If you tell a big enough lie and tell it frequently enough, it will be believed.

And he followed that up with…

What luck for rulers that men do not think.

Society (generally speaking) lacks the ability to apply independent thought; to question what we’re being told and to challenge the accepted ‘wisdom’.

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Climate crisis

A 16-year-old Swedish schoolgirl takes time off school to demonstrate for bold climate action. Her protests at the lack of political action on the so-called ‘climate crisis’ become a social media sensation.

Those controlling the climate change agenda — the ones who tell big enough lies and tell them frequently enough for them to be believed — have a new public face for their deception.

The journalists fawn over young Greta. Microphones are at the ready to capture every prophetic word she utters. Hundreds of school kids gather in New York to greet their heroine.

School kids going on strike over climate change. Now that’s a real waste of energy. They should get back to the books…especially the history books.

If the education system was fair dinkum, it should be teaching these young impressionable minds about the perils of group think.

When the climate crisis turns out to be nothing more than a storm in a tea cup, has anyone considered how this mollycoddled generation will cope with being duped?

Probably not.

Oh, how the world wants to be deceived.

Shares always go up

And when it comes to deception, there’s none better at it than Wall Street.

If you believe the hype, there is never a bad time to invest.

Shares always go up in the long term.

Keep telling those porky pies often enough and it becomes folklore.

Everyone believes it…even novice investors.

But very few stop to ask what’s propelling those prices higher and can it be sustained?

In the August 2019 edition of The Gowdie Letter we referenced the work of one on the investment industry’s real thinkers.

Ray Dalio, the founder of Bridgewater & Associates (the world’s largest hedge fund firm), latest research paper is titled ‘Paradigm Shifts’.

In the research, Ray Dalio states (emphasis is mine)…

There are always big unsustainable forces that drive the paradigm. They go on long enough for people to believe that they will never end even though they obviously must end. A classic one of those is an unsustainable rate of debt growth that supports the buying of investment assets; it drives asset prices up, which leads people to believe that borrowing and buying those investment assets is a good thing to do. But it can’t go on forever because the entities borrowing and buying those assets will run out of borrowing capacity while the debt service costs rise relative to their incomes by amounts that squeeze their cash flows. When these things happen, there is a paradigm shift.

People want to be deceived into believing the trend will never end. But it always ends.

The cycle always turns.

This is an edited extract from the August 2019 edition of The Gowdie Letter

The US market’s longest bull run in history has been one for the ages.

Record highs followed by record highs.

The longer the US market continues to register gains, the more we (as in society) believe/entertain/consider, ‘it could be different this time’. As silly as that notion sounds to me, from conversation I’ve had in recent times, I’m left with no doubt that collective thinking is ‘doubting whether history will repeat itself’.

The majority of investors know the US share market has been a stand out performer since the events of 2008/09.

But very few know how that performance has been achieved.

Most will cite the strength of the US economy and perhaps the effect of low rates on ‘forcing’ people to buy income producing shares.

But how much have low rates contributed to the market’s performance?

What about the other positive influences…how much have they boosted the performance numbers?

And, more importantly, can they be repeated?

Here’s the chart from ‘Paradigm Shift’s that identifies how much each ‘booster’ has added to the S&P 500 index performance.

Blue line — S&P 500 index performance.

Red line — the performance without the assistance of…artificially low interest rates.

Orange line — the performance without the assistance of…low interest rates AND profit margin expansion (more on that later).

Grey line — the performance without the assistance of…low interest rates AND profit margin expansion AND Corporate tax cuts.

Dotted blue line — the performance without the assistance of…all of the above AND Share buybacks (reducing the share count).

US Equity Prices (Indexed to 1999)- 6-09-19

Source: Paradigm Shifts

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Absent the stimulatory effects of these ‘boosters’, the performance of the S&P 500 index would have been lacklustre…a truer reflection of the underlying economic conditions.

The other performance enhancing factor that Ray Dalio did NOT include in the chart, was the impact of…PE expansion.

In September 2011, the S&P 500 index average PE ratio hit a low of 13 times.

Since then it has expanded to 21 times…a 61% increase.

Those who’ve ridden the artificially created US bull market for all it’s worth have done very nicely.

But anyone who thinks this asset price appreciation has been achieved on the back of genuine growth, they’re deceiving themselves.

And therein lies the problem. Most people believe the ‘market always goes up’ hype.

Therefore, it’s unlikely the majority will want cash out their good fortune prior to the coming paradigm shift.

The other issue to consider is when the US market does collapse, can all those stimulatory factors be used again to the same ‘wealth creating’ effect?

Unlikely.

GDP growth

And another great deception is the one we’re told about GDP growth reflecting economic strength.

This is a lie that’s told every quarter and it’s swallowed hook, line and sinker every time by the media and public.

We Aussies pride ourselves on our world record breaking recession-free run. Well done us.

But how have we achieved this dream economic run?

Australia’s last official recession finished in September 1991.

Our nation’s total outstanding debt at that time was $850 billion.

Today, it’s estimated to be $7,300 billion.

TOtal Australian Credit (AUD Millions)- 6-09-19

Source: Australian Debt Clock

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Our love affair with debt has been the driver behind our economic success.

The injection of $6500 billion in borrowings is what’s kept our GDP needle in the positive.

It’s simply not possible to continue bringing forward so much future consumption.

Eventually it must stop.

And when it does, we’ll go through a period of excruciating withdrawal symptoms.

Jobs lost. Businesses closed. Properties foreclosed.

We’ve seen this before with those other, once touted, ‘miracle’ economies…Japan, Ireland and Spain.

Prolonged credit booms always ends badly. Perhaps that’s something the education system should be teaching our youth.

The world may want to be deceived, but you don’t have to be.

As we edge closer to the coming paradigm shift, there’s never been a more crucial time to exercise independent thought.

Your family’s financial wellbeing depends upon it.

Regards

Vern Gowdie Signature

Vern Gowdie,
Editor, The Rum Rebellion

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Vern has been involved in financial planning since 1986. In 1999, Personal Investor magazine ranked Vern as one of Australia’s Top 50 financial planners. His previous firm, Gowdie Financial Planning, was recognised in 2004, 2005, 2006 & 2007, by Independent Financial Adviser magazine as one of the top five financial planning firms in Australia. In 2005, Vern commenced his writing career with the ‘Big Picture’ column for regional newspapers and was a commentator on financial matters for Prime Radio talkback. In 2008, he sold his financial planning firm due to concerns about an impending economic downturn and the impact this would have on the investment industry. In 2013, he joined Port Phillip Publishing as editor of Gowdie Family Wealth. In 2015, his book The End of Australia sold over 20,000 copies and launched his second premium newsletter, The Gowdie Letter. Vern has since published two other books, A Parents Gift of Knowledge, all about the passing of investing intelligence from father to daughter, and How Much Bull can Investors Bear, an expose on the investment industry’s smoke and mirrors. His contrarian views often place him at odds with the financial planning profession today, but Vern’s sole motivation is to help investors like you to protect their own and their family’s wealth.


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