Does Wall Street See That The Emporer's Not Wearing Clothes?

Written by Chris Marcus, Arcadia Economics.

There are several aspects about working in today’s financial industry that are less than perfect, although gaining an insight into how many on Wall Street think and why they make the decisions that they do is certainly one of the positives. In fact what many on the outside often have a hard time understanding is that most on Wall Street are in reality somewhat oblivious to massive bubbles that the Federal Reserve has inflated, and that can make things confusing when you don’t factor it in properly. However whether they should understand what’s going on or not, once you can understand the mindset from which the average Wall Streeter is coming from, it can give you an incredible trading advantage that’s almost the equivalent of spotting your opponent’s “tell” at the poker table.

While perhaps I shouldn’t be advertizing this out loud, I have to confess that until 2009 I was just as much in the dark about how the whole Wall Street and Federal Reserve system operated as anybody else. And that was after even attending Wharton’s MBA program, trading equity options on the New York Stock Exchange, and working in the financial industry since 2001. But that’s the thing. The reason that so few on Wall Street seem to be able to grasp what’s really happening is that the entire system trains you to believe the illusion each individual step of the way. In fact sometimes it almost seems like the more time someone spends in the financial industry, the harder it becomes for them to see reality clearly.

Think about it. For those of us who attended public school in the U.S., in many cases we were even forced to pledge allegiance to the flag each morning as a regular part of the start of each school day. And certainly as I learned about 20 years later how the mind works by feeding upon affirmations and statements that we repeat to ourselves for long enough, it makes sense how Americans have been trained to trust in the full faith and confidence of a system that in reality offers little to be faithful and confident in.

College and business school? Not much different there. In fact my main memory of Wharton is actually of sitting in the economics classes and listening to how the way to fix the economy whenever there’s a problem is for the Fed to buy bonds and inject more money into the system. Can you believe that? The Ivy League schools are one of the main places where everyone is getting brainwashed into believing this unicorn brand of magical government economics. Looking back on it now, it’s almost as if the business schools were like a little minor league training ground to turn our supposed finest students into future bankers and politicians.

So by the time some of these guys have spent 20 to 30 years building a career based on a set of incorrect beliefs that our government has sold us all along the way, it can sometimes be a bit to handle to find out that it’s all been a lie. Like the soldiers who are finding out that the wars they’ve been sent to fight have in reality little to do with the publicly stated purposes, or how many in the medical industry are finding out that many of the prescription drugs they were trained to prescribe are in actuality far more dangerous than most of us ever thought, many on Wall Street are faced with the task of recognizing that the whole system is about as honest as Enron. And in my experience, the shock of finding out that so much of what we’ve been led to believe has been pure mythology seemed to just be more than most of the people I worked around were ready to handle. In fact once I started talking about gold or silver to anyone who would listen back in 2009, it was as if somewhere inside you could tell that they realized that it was all coming to an end, but that they just preferred to not ask any questions and hope it would go on long enough for them to be ok. But as we found out in 2008, the markets have their own schedule, and in the end, coming to grips with reality just always seemed to make a lot more sense than continuing to try to pretend to believe in Uncle Ben and his magic cough syrup any longer.

Ultimately it’s up to each person to decide for themselves what’s “right” or what “should” happen, as it’s hardly my or Arcadia’s place to be the judge of anyone else and what they do. However to the degree that it’s useful to understand how people think and are likely to react, which certainly is the case when investing in the financial markets, it can be incredibly profitable to recognize and understand why so many of the bankers seem to be completely oblivious to what’s going on. If you want to know more, you can find some answers here, but in the end just remember that the next time you start to wonder if you’re the one who’s missing something, at least in my opinion, this time it’s them, not you.

In Gold We Trust