BUBBLES
The American Dream
Why environmental patriotism is driving global financial markets to the brink
“What might have been is an essential component of misery” Daniel Kahneman memo to Amos Tversky (The Undoing Project)
“Americans will always do the right thing”, according to Winston Churchill. Yet American presidents and policy makers have a habit of taking things too far. The Greenspan put, Bush’s “ownership society” and Jimmy Carter’s “crisis of confidence” all preceded some of the worst crashes in financial history. I believe Obama’s pennyworth is the “irreversible momentum of clean energy”; it just requires Joe Biden’s help. “American- made is making a comeback”, says Biden:
Super Bowl adverts such as this also show just how ingrained jingoism is in American culture:
Because the thought of Norway out-EV-ing America, or America losing the fight to climate change, just doesn’t sit right. Michael Bader’s The Psychology of Patriotism also explains that feelings for one’s country increase when threatened; American patriotism helped vanquish Nazi fascism, soviet communism and Al-Qaeda.
The same is true for climate change, and presidential influence exists because ‘we look to our leaders to provide the protection and strength usually associated with fathers’.
Patriotism also seems to be tied to the stock market– national sentiment tracked the boom and bust of the dot-com bubble, dropped in the 2008 crisis and is rising in line with the current bull run.
The aptly named Patriotism in your portfolio also explains why investors display a large home bias in their equity selection, with more patriotic countries displaying a larger bias. When combined with feelings of regret, the perfect bubble breeding ground is created.
Humans seek to minimise regret. Daniel Kahneman’s Norm theory states that humans create counterfactual alternative narratives to reduce the pain of negative events. This explains our innate risk aversion and preference for the status quo: “the pain that is experienced when the loss is caused by an act that modified the status quo is significantly greater than the pain that is experienced when the decision led to the retention of the status quo”.
But these feelings can also explain risk seeking behaviour. Just as the family member of someone killed in a car crash might think ‘if only they’d gone the normal route’, investors might seek to avoid feelings of ‘if only I’d bought that dip’. Next day rebounds are becoming the new status quo.
Shiller’s ‘buy the dip!’ index is soaring among institutional investors because of the MAGA-like belief that ‘stocks only go up’ in America, and FOMO on the gains of fellow Americans. Is this an infinite bull run or an impending bull trap?
