Learn these two
THE two most valuable courses to take to learn how the financial and asset markets function are history and physics. In fact, take these two courses to learn how life works.
Learning the history of anything—art, nation or even your own family—provides a timeline to put everything in proper perspective and context. “You do not know how you got here until you know where you came from” and “You do not know where you are going until you know where you are now.” That is what history is all about. Otherwise, your intellectual understanding will be as easy and clear as walking into the middle of a Quentin Tarantino movie and not having a clue about the story.
In truth, one of the reasons that journalism is such a useless farce today is because those in the industry refuse to look at issues and people in historical context. You cannot answer the question “why did this happen” unless you know “what happened before.”
The timeline of history shows that the event in question was not coincidental and that the path that led to where we are today was inevitable if we look at that path from the top of the mountain. There is a reason why wise gurus are often pictured on a mountaintop cave. Of course, nothing is cast in stone, and we still have free will decisions to make. However, circumstances push the decision-making.
The second discipline that you should study is physics, which teaches two lessons. The first is that there is a clear and definable order to the universe or at least the little part that we can see with our own eyes. The other lesson is that the order is not constant and repetitive that it creates a rule or law of how things operate.
For example: World history was disgustingly boring for about 10,000 years with the only excitement coming from trying to figure out which animal was periodically eating the sun/moon and finding new ways of killing each other. Then around 1750, things changed with the industrial revolution. From that time, human quality of life started improving and exploded with the advent of the 20th century as measured by life expectancy and the other factors. That is part of the history.
The other part is that the industrial revolution was fueled by coal, which replaced wood that was becoming scarce. The explosion of the human standard of living came when oil became a viable, readily available, and cost-effective fuel source.
Now the 21st-century physics. For 25 years and after $5 trillion being spent, the use of fossil fuels has dropped 2 percent. To get the same amount of energy from solar and wind to replace what we get from fossil fuels would require increasing mining by 1,000 percent.
Note that we are very good at creating new ways to use energy— airplanes, cars, pharmaceuticals, communication devices—and not so good at finding new ways to produce energy. Greenamerica.org: “10 Reasons to Oppose Nuclear Energy,” nuclear being the only new source of energy in over 100 years. Wind and solar are not new.
More physics. Pascal’s law says that fluid in a closed container, a pressure change in one part is transmitted without loss to every portion of the fluid and to the walls of the container. In economics and the stock market, “A rising tide lifts all boats. A typhoon sinks them.” First Law of Thermodynamics: Energy can be changed from one form to another, but it cannot be created or destroyed. Economics: “Production has costs. There is no such thing as a free lunch.”
We think of Newton’s Law of Gravitation incorrectly—“what goes up must come down”—as applicable to asset prices. But more appropriately we should remember the physics behind, “Before the price starts going up, it must first stop going down.”
The best law of the markets is, “When everyone thinks central bankers, money managers, corporate managers, politicians or any other group are the smartest guys in the room, you are in a bubble.”