The Hammer, the Elephant, and the Markets

We’re entering the sweltering months of summer with equity markets at record highs, but economies around the world are barely limping along.

The leading stocks of the last two years are being smashed lower, while interest rates are flashing warning signs, even though central banks have yet to step in with higher levels of buying.

Will things settle down and will the recovery grow stronger, or is this the beginning of a severe correction that brings markets back in line with economic growth?

Are markets consolidating or topping?

Let’s see what a famous psychologist and a well-known parable from India has to say first…

The Hammer and the Markets

In his book, The Psychology of Science (1966), Abraham Maslow famously wrote: “I suppose it is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail.”

The sentiment wasn’t new, but this became known as Maslow’s Hammer, and it’s used to describe the law of the instrument. That is, the over-reliance on a familiar tool.

Maslow’s basic idea was that we tend to see the world through our own history and perspective, desperately trying to reduce all information to bits we can understand in our own frameworks.

While Maslow was pointing out the flaws of modern scientists as they tried to describe how the human brain works through physical explanations of composition and physiology, his basic premise can be traced back to a parable from India that discusses blind men and an elephant.

The Elephant and the Markets

Each man touches the elephant in one spot — the trunk, the tail, the belly, etc. — and comes away with a different description of the creature.

Every man is both right and wrong at the same time. All of them failed to see the entire elephant, and none accepted the points of view of the others.

All of this comes to mind as I read different takes on the current state of the economy and the markets.

It seems that most people are desperate to shoehorn what they see on the screen, on Main Street, and on Wall Street into their own set of experiences.

There is a better way. That is, accepting the views of others who approach the issue from a completely different point of view.

I give a lot of speeches, handling a bunch of questions from the front of the room. One of my best answers starts with the phrase: “I don’t know, but Harry…” It doesn’t mean that “we” don’t know, only that the question is not my area of expertise.

Typically, these questions have to do with cycles, technical levels of the markets, or perhaps business development ideas… all of which are part of Harry Dent’s makeup. They fall within his background and scope of experience. He did a stint at Bain & Company, has traded futures and other securities that move on technicals, and of course, has a long history of demographic and economic research.

When Harry gets a question on the inner workings of the bond markets, or the composition of the Federal Reserve’s balance sheet, he’ll throw it over to me. With my education and experience as a bond trader, these are topics I know exceptionally well. Over the last 17 years, I’ve bolstered my experience by deep diving into economic and demographic research as well.

The fact that our readers and clients get both of our perspectives on a wide range of topics can only serve to bring more clarity to the issues that face us today, when economies and markets around the world are poised at inflection points.

We discuss a wide range of issues, arguing and poking at things from different points of view, and then determine what we think is the most likely way forward.

Over the past several years, our approach has advanced as we added our Chief Investment Strategist, Adam O’Dell, CMT, to the mix.

Adam doesn’t come from management consulting, nor has he worked at a wire house (huge brokerage firm) on a bond desk. He did his time in the trenches at trading firms, assisting clients and working with trading systems. His take on the world is a far cry from Harry’s or mine, which means his contribution to the conversation is welcome.

This team approach was in full force recently as we set out on the Great American Reset Tour, and it was clearly evident as we ended each day with a Q&A. Participants would address a question to one of us, but that might not be who answered. We left it to the person with the best knowledge of the subject to lead the discussion, while others would chime in from their own point of view if warranted.

This left attendees not only with good answers to their questions, but satisfied knowing they were benefiting from three minds instead of just one. Instead of getting a singular description of one part of the elephant, they got to see the whole beast, in all its glory.

Given that we’re at a pivotal point in so many areas, I’m glad to be part of a team that brings you the best information possible, instead of trying to answer every question, on all parts of the market, from just one point of view. Those who try that approach tend to end up smashing their fingers — and sometimes their portfolios — with the hammer.


Rodney

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Categories: Markets

About Author

Rodney Johnson works closely with Harry Dent to study how people spend their money as they go through predictable stages of life, how that spending drives our economy and how you can use this information to invest successfully in any market. Rodney began his career in financial services on Wall Street in the 1980s with Thomson McKinnon and then Prudential Securities. He started working on projects with Harry in the mid-1990s. He’s a regular guest on several radio programs such as America’s Wealth Management, Savvy Investor Radio, and has been featured on CNBC, Fox News and Fox Business’s “America’s Nightly Scorecard, where he discusses economic trends ranging from the price of oil to the direction of the U.S. economy. He holds degrees from Georgetown University and Southern Methodist University.