Now Thats a Good Looking Buck
Years ago I remember hearing about a psychology study that went something like this:
A random sample of men were brought in to a lab and were asked to rank-order photos of 20 women according to their attractiveness. But there was a catch, they were told that if they can rank order them accurately according to the final results of the study (after surveying all the men) they would win a prize.
Here’s the interesting part… the subjects stopped choosing based on their own beliefs and perceptions of beauty, since now they were motivated by a prize. Their answers were now tailored to the expected perceptions of others’, rather than their own. For instance, one man could have thought that red hair women deserved to be highly ranked, but also held the belief that most other men enjoy blonde women, so he changed his answers to promote blondes and demote red hair women thinking this is going to get him closer to choosing the correct sequence [to win the prize]. Every man after this one did the same. I really found this study interesting. My $26K degree was worth it!
One day, I recalled this study for whatever reason after many podcasts I thought, wait a minute, that’s the dollar. Many have eluded to its downfall in confidence due to the sheer public/private debt, Off-balance sheet liabilities, debt:GDP, emergence of alternatives & endless spending from the US treasury. It doesn’t help that many are predicting heightened inflation rates last this decade. The US (and Europe) have gotten used to the finance fixes all solution by purchasing more and more debt to keep the current system afloat.
Investor Peter Schiff has said the US has gotten addicted to what he calls monetary heroin; just like an addict needs more and more substance to feel a response–more and more dollar refinancing is needed for new growth and to keep corporate zombies alive. Perhaps a change could be in the wind.
For the first time in 2020, foreign investors elected to not run to treasuries for safety, but rather bought US equity growth stocks and foreign value stocks. Saudi Arabia, Russia, UAE and China are publicly electing to drop US reserves in exchange for trading in their own currencies for resources, and many Central Banks around the world are upping gold bullion purchases. Hence, the USD is losing its influence on the big stage (albeit very slowly).
But how does this relate to the initial study? Consider our own behavioural study where I were your employer and I were to ask you how you wish to be paid: In Colombian Pesos, Russian Rubles, Japanese Yen, Euros or US Dollars—I’m going to put my bet that you’re still electing to accept USD as payment, despite the aforementioned threats taking place. You may be fully aware of its flaws or eventual doom or still deem it unattractive, but the expectation is that the world is hungry for dollars. This is mostly due to dollar-denominated debt and foreign domestic currencies trending to zero just a little faster. You are likely to accept dollars because you know that others are too and therefore they carry a heightened utility/demand, relatively speaking.
This is analogous to say that even that you’re not attracted to the blonde girl (USD), you still may ‘rank’ it quite high in your portfolio—because of expectation of others.
So the questions I want to pose are:
- how long until the belief of what others are attracted towards changes away from US Dollars to something else (and what is this something else?)
- What will be the catalyst to change this expectation of attraction?
- Finally, do you believe the introduction of a digital currency would accelerate this rejection of US Dollars?
Happy dating, investors!
#StayOnTheBall
