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
Value vs. Growth Investing (10/13/17)
|US Large Cap||0.15||16.78||2.28||5.12||22.88||13.31||14.61|
|US Large Core||0.33||17.13||1.40||4.15||23.08||13.95||16.13|
|US Large Growth||0.39||24.56||1.93||5.39||26.46||14.70||15.35|
|US Large Val||-0.29||9.25||3.55||5.75||19.25||11.22||12.43|
|US Mid Cap||0.12||13.58||2.96||4.04||20.89||13.00||15.27|
|US Mid Core||0.02||13.71||2.87||4.05||19.88||12.91||15.21|
|US Mid Growth||0.18||19.91||2.98||4.91||23.85||12.79||13.91|
|US Mid Val||0.15||7.30||3.03||3.04||18.76||13.19||16.71|
|US Small Cap||-0.19||10.85||4.65||4.95||21.72||13.01||14.17|
|US Small Core||-0.35||8.52||4.79||4.36||20.70||12.89||14.49|
|US Small Growth||-0.25||19.34||4.47||5.64||24.65||14.30||14.14|
|US Small Val||0.05||5.08||4.72||4.88||19.49||11.78||13.83|
©2004 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) is not warranted to be accurate, complete or timely. Morningstar is not responsible for any damages or losses arising from any use of this information and has not granted its consent to be considered or deemed an “expert” under the Securities Act of 1933. Past performance is no guarantee of future results. Indices are unmanaged and while these indices can be invested in directly, this is neither a recommendation nor an offer to purchase. This can only be done by prospectus and should be on the recommendation of a licensed professional.
17 Reasons You Should Attend Our “Social Security Planning For Women Event”
- The triple whammy many women face in retirement
- Why singling out women for Social Security planning is important?
- Why women really need Social Security planning—and why men should care?
- How Social Security benefits women?
- What all women need to know about Social Security?
- How a husband’s decisions affect a woman’s Social Security benefits?
- How to claim benefits from a divorced spouse?
- How remarriage affects benefits?
- What women can do now to increase their Social Security benefits?
- Essential Social Security planning for women of all ages
- Why Social Security planning inspires people to do comprehensive survivor planning, including insurance, investments, and estate planning?
- Which is greater: earned benefit or spousal benefit?
- 4 key questions to answer when projecting benefits
- 6 possible scenarios to consider
- Understanding the rules for earned benefits, spousal benefits, divorced-spouse benefits and survivor benefits.
- What if you divorce in retirement?
- Why it is important to report all marital events to Social Security
Michael L. Schwartz, RFC®, CWS®, CFS
P.S. Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this email with their email address and we will ask for their permission to be added.
Michael L. Schwartz, RFC, CWS, CFS, a registered principal offering securities and advisory services through Independent Financial Group, LLC., a registered broker-dealer and investment advisor. Member FINRA-SIPC. Schwartz Financial and Independent Financial Group are unaffiliated entities.
This information is provided for informational purposes only and is not a solicitation or recommendation that any particular investor should purchase or sell any security. The information contained herein is obtained from sources believed to be reliable but its accuracy or completeness is not guaranteed. Any opinions expressed herein are subject to change without notice. An Index is a composite of securities that provides a performance benchmark. Returns are presented for illustrative purposes only and are not intended to project the performance of any specific investment. Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly. Past performance is not a guarantee of future results.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
* The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices.
* 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 London afternoon gold price fix as reported by the London Bullion Market Association.
* The DJ 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 TR 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.
* Past performance does not guarantee future results.
* You cannot invest directly in an index.
* Consult your financial professional before making any investment decision.
* To unsubscribe from our “market commentary” please reply to this e-mail with “Unsubscribe” in the subject line, or write us at “firstname.lastname@example.org”.