Markets and Morality

It really is quite incredible just how loose the ethical standards of the world’s most powerful people are. They pretty much act with impunity.

The Financial Times reports this morning that:

Donald Trump has ordered the US commerce department to assist a Chinese telecoms group that the agency nearly put out of business a month ago, following a personal request from China’s president.’

Trump, of course, made the announcement via Twitter:

President Xi of China, and I, are working together to give massive Chinese phone company, ZTE, a way to get back into business, fast. Too many jobs in China lost. Commerce Department has been instructed to get it done!

For some background, the US Commerce Department last year barred Chinese telecom company, ZTE Group, from purchasing US made components for seven years. This was after it was caught ‘violating the terms of a $1.2bn settlement agreed last year in which ZTE admitted illegally selling equipment that included sensitive US parts to Iran and North Korea’.

According to the Financial Times report, ZTE ‘had been caught giving bonuses to the very officials responsible for the elaborate scheme used to circumvent US export control rules and had lied to US authorities about it’.

ZTE’s illegality didn’t go down well with President Xi though. Actually, let me rephrase that. ZTE’s illegality being discovered by the Americans didn’t go down well with President Xi, and so he wants to call a truce with Trump and start the game again.

Meanwhile, in nanny state Australia, if you drive through a 40km zone at 44km you get a ridiculous fine. Seriously, kids, if you want to break the law, disregard the consequences, and make a bunch of money, go into government…or a big business with government support.

A caveat though. When you cease to matter, you will find yourself being made an example of…

Can President Trump flout the law with the flourish of a Twitter finger? Legally, the President shouldn’t be able to do a thing. Who knows though, he appears to do whatever he wants, with little regard for the consequences.

At least China’s President Xi is an out-and-out dictator. He has authority to do whatever he wants as long as it’s promoting China’s interests. 

Western democracies, on the other hand, are hamstrung by the need to act ethically in the eyes of the electorate. On the surface, that is. Below the surface, they do whatever they can to promote the interests of the powerful few that support their quest for power.

Above the surface, they placate the voting masses by promoting fear and providing handouts.

A cynical view of the world, you might say. Unfortunately, it is simply a realistic view.

Which is why financial markets fascinate me. Money is amoral, and, unlike politics, makes no pretence to ‘play fair’. Money doesn’t lie, undermine, or coerce. It just is.

If you look at the market through this lens, rather than through the lens of your own morality, it becomes much easier to deal with. And you have a better chance of making money when you do so, rather than being frustrated or disgusted with the behaviour of the world’s major players.

Just consider the worldwide contempt that accompanied Donald Trump’s election. A lot of people got out of the market at the time, thinking Trump would be a disaster. It was the dumbest thing you could’ve done.

Not because Trump wasn’t a disaster. (On that front you could argue either way, depending on your political standing). No, it was dumb because the market doesn’t really care who is President. As long as the President isn’t a full-on socialist, the economy and the market will do what it has always done.

But in the case of Trump, a President with few scruples, the market loved it. An amoral market and an amoral (or immoral, take your pick) President? It’s a match made in heaven.

Credit Where Credit is Due

Credit where credit is due though. Trump’s tax cuts, which came through at the start of the year, provided a big boost to company earnings and shares prices. It means fiscal policy has more than compensated for the very slow tightening in monetary policy enacted by the Federal Reserve.

The issue for markets around the world now is just how to assess this interplay between US fiscal and monetary policy. If US interest rates rise three more times this year as expected, will it be enough to offset the fiscal stimulus? And by the end of the year, will the fiscal boost have run its course anyway?

The positive mood of the market over the past few weeks suggests that policy settings are, and will remain, stimulatory. But as I’ll show tomorrow, this view could prove short lived.


Greg Canavan,
Editor, Crisis & Opportunity

Greg Canavan is a Feature Editor at Money Morning and Head of Research at Fat Tail Investment Research.

He likes to promote a seemingly weird investment philosophy based on the old adage that ‘ignorance is bliss’.

That is, investing in the Information Age means you have all the information you need at your fingertips. But how useful is this information? Much of it is noise and serves to confuse, rather than inform, investors.

And, through the process of confirmation bias, you tend to read what you already agree with. As a result, you often only think you know that you know what is going on. But, the fact is, you really don’t know. No one does. The world is far too complex to understand.

When you accept this, your newfound ignorance becomes a formidable investment weapon. That’s because you’re not a slave to your emotions and biases.

Greg puts this philosophy into action as the Editor of Crisis & Opportunity. As the name suggests, Greg sees opportunity in a crisis. To find the opportunities, he uses a process called the ‘Fusion Method’, which combines traditional valuation techniques with charting analysis.

Read correctly, a chart contains all the information you need. It contains no opinions or emotion. Combine that with traditional stock analysis and you have a robust stock-selection strategy.

With Greg’s help, you can implement a long-term wealth-building strategy into your financial planning, be better prepared for the financial challenges ahead, and stop making the basic, costly mistakes that most private investors do every time they buy a stock.

To find out more about Greg’s investing style and his financial worldview, take out a free subscription to Money Morning here.

And to discover more about Greg’s ‘ignorance is bliss’ investment strategy and the Fusion Method of investing, take out a 30-day trial to his value investing service Crisis & Opportunity here.

Official websites and financial e-letters Greg writes for:

Money Morning Australia