by Kyle Johnson
It’s a cliche and a trope. Browse financial media for a while and you’ll likely bump into someone claiming “this time is different.”
The phrase is used to justify a claim that the usual negative outcomes of well-understood trends won’t apply in the current case. You’ll see!
But it’s a tautology. To say that “this time is different“ is to say very little if anything at all.
Nothing is in stasis. Everything is either in a state of growth or decay. It’s guaranteed that things will be different over time.
Given that things are perpetually in flux, we must examine what will be different this time, how different they’ll be, and why.
As speculators and contrarians, we tend to focus on getting ahead of sudden economic booms or busts. So, let’s rewind for a moment to the last crisis: 2008.
What has changed since then?
More debt, more inflation, and more central-banking shenanigans. I suspect you’re familiar with the global financial system’s problems as the “Austrians” and free-market folks see them.
But here’s something that many overlook: the importance of social media and our access to valuable information—for those who understand how to separate signal from noise.
Many of today’s popular platforms were in their infancy back in 2008 when the you-know-what hit the fan. Twitter was up and running for little more than a year when markets crashed. YouTube was just three years old and dominated by home videos and amateur documentaries. Fellow three-year-old Reddit only separated from Condé Nast in 2011, after which its usage soared.
It’s easy (and perhaps even understandable) to dismiss the impact of social media on financial markets as being trivial… or it might have been until the advent of “meme stocks.”
YouTube and Twitter have grown to dominate time and attention in ways few stop to appreciate. Reddit, of course, has shaken Wall Street. They give investors access to real-time information once reserved for (and perhaps even unavailable to) governments, sovereign wealth funds, and the largest hedge funds.
How has the proliferation of information impacted markets?
There are only three possibilities:
- Information spread via social media slows down market action.
- It has no significant impact on market action.
- It accelerates market action.
The answer is obvious: information on social media is an accelerant.
Financial news or otherwise, people rush to post the first bit of information that seems remotely true during major news events. Accuracy is sacrificed for virality.
During the fallout from the Coronavirus, we saw how social media can directly impact the booms and busts of meme stocks. Social media has the power to directly impact prices of legitimate businesses (like AMC and GameStop), not just some penny stocks. It wasn’t merely retail investors swapping the stocks back and forth. Once the first big fund got run over by the Reddit steamroller, Wall Street firms got in on the action.
During the FTX fiasco, we had leaks from insiders and public proclamations from executives. Companies within and without the cryptosphere came forward to claim how much or how little the FTX collapse will impact their own customers and business operations. Establishment financial media heard about it at the same time retail investors did.
Odds are that we’ll get “boots on the ground” reporting from inside the next Bear Stearns- and Lehman Brothers-type events as they happen.
I’ve highlighted how emotions clouded the judgment of legendary investors who invested in FTX. Remember that that happened during a bull market. Don’t imagine that world-class investors are immune from mistakes during a crisis. And how do you suppose the average retail investor will fare?
If Lobo—The Independent Speculator—is right about where 2023 is headed, professional and mainstream investors late to catch on will be frantically researching gold, silver, and uranium stocks as tickers. And they won’t be relying just on their old Bloomberg terminals—related buzzwords spread like wild fire across social media. Many of the same people who mock gold bugs will start investing like them—and will make newbie mistakes.
There’s good reason to conclude that the next economic crisis will be unprecedented. It makes sense for a record boom to be followed by a record bust. And that’s not to mention all the unconscionable distortions governments and their central banks have been foisting on the economy for decades—distortions that must eventually be liquidated. We just don’t know when. No one does.
But what’s certain is that investors will have unprecedented access to each others’ thoughts as the next crisis plays out. From Wall Street executives to anonymous investors with cartoon animals as their profile pictures, virtually everyone in the markets will test the server capacity of their favorite social media platforms.
It only makes sense to prepare prior to any historic moves.
How?
We can help. Subscribing to our free Speculator’s Digest is a great way to put Lobo’s level-headed analysis—not available anywhere else—to work for you as a counterweight to the flood of hype headed our way.
Otherwise, just remember his motto:
Caveat emptor.
