“We are not makers of history. We are made by history.”
~ Martin Luther King, Jr.

2021 was the Great Acceleration of technology and society: Memes, Anti-aging, mRNA, CRISPR, AI, Sustainable Finance, the Electricity Economy, Metaverse, DeFi, NFTs, Flying cars, and to cap it all off – surprise! – inflation.

As investors it helps to know the dominant narratives driving the market, and where we are in each cycle. In 2021 media narratives dominated the conversation and passed on silently in COVID-like waves. The contagiousness of memes, and the bold meaninglessness of many, imbued 2021’s financial markets with a beautiful insanity.

An article summarizing a few of the year’s memetic winners is here. The pace of change will slow (some mini-bubbles are popping), but markets will be forever changed. It’s an amazing time to be alive, with the Acceleration of Everything.

Today’s newsletter is a review of the mental state of the markets in 2021 and a speculative look ahead.

(Given Monday's U.S. holiday in MLK Jr’s honor, I found his thoughts especially relevant today - thus the quotes, and if you’re hiring in finance, please check out www.wallstreetbound.org).

Investment Narratives

The investment digital exhaust of 2021 will be studied and written about by generations of historians. At MarketPsych we have a unique perspective on investor psychology due to our media-based data. We've been tracking interesting assets for years including renewable energy, crypto (see our optimistic April 2013 Bitcoin newsletter here), and social movements like the meme stock frenzy. Bloomberg has an excellent and joyful summary of the year: (“Investing’s Wild Year”) 2021's Wild Year of Trading Stocks, NFTs and Crypto Changed Investing Forever - Bloomberg

Words have impact, and that impact can be measured in the tone of comprehension. We tallied the social media sentiment (tone) expressed around 50 economic industries in 2021, and the most positive embody key themes of the year:

1.    Artificial Intelligence
2.    Renewable Energy
3.    Robotics

Some of the top ranked are more mundane, more like markets used to be -- note US Homebuilding & Construction Supplies (#4). See the full post here.

Political Signaling

“Darkness cannot drive out darkness; only light can do that. Hate cannot drive out hate; only love can do that.”
~ Martin Luther King, Jr.

In 2021 words (like COVID masks) were sometimes used as a social signal, to affirm our membership in a political sect or to exclude an out-group. Political actions like Redditors squeezing shorts and mayors of Miami and New York City requesting salary in Bitcoin served as such signals. A few politicized concepts in 2021:

• Meme vs Value investing (yes, I think "value investing" can be used as a social signal)
• Decentralized vs Centralized
• Woke vs Racist
• Ivermectin vs Vaccination
• Tendies vs Hedgies

These words create cliques (and clicks), feed the algorithms, and segregate us into info tribes.

Political righteousness is a much milder form of dehumanization than racial segregation, but it can be a first step towards social segregation by belief. MLK Jr noted of racial segregation:

“Segregation...not only harms one physically but injures one spiritually...It scars the soul...It is a system which forever stares the segregated in the face, saying 'You are less than...''You are not equal to...'”

We hope that 2022 will bring rekindled respect for social differences.

Reading the Tea Leaves

“Rarely do we find men who willingly engage in hard, solid thinking. There is an almost universal quest for easy answers and half-baked solutions. Nothing pains some people more than having to think.”
~ Martin Luther King, Jr.

Thinking ahead to 2022 is not clean or easy.

A common investor concern – from real estate to cryptocurrencies and fiat bonds - is when and how fast the froth in asset prices will wane. Most likely, regulation and interest rates will rise in 2022. We’re already seeing strong movement higher in interest rate expectations. Supply chain paralysis is not sustainable, but wage-price spirals have a way of self-perpetuating once begun.

Socially we will continue to adapt to COVID. But if interest rates stay generally low, and abundant liquidity remains (likely), then new bubbles will form - "what's next?" is the key question.

During the South Seas Bubble, when self-promotion got out of hand, a law was passed by the British parliament (June 1720, the “Bubble Act”) to prevent non-royal-endorsed joint stock companies from issuing shares to the public. Yet companies continued selling shares for absurd enterprises. One advertised its business as: “For carrying on an undertaking of great advantage; but nobody to know what it is” (MacKay, 1841). Not as absurd as "Doont Buy" coin or Zombie Inu, but in the same ballpark. See “Doon’t Buy” Coin, up 340% per CoinMarketCap.com on 31 August, 2021:

While national regulators can legislate their citizens away from crypto, the genie may already be out of the bottle globally. As more countries like Turkey experience high price inflation and instability, citizens will see the value in easy and secure electronic alternatives.

Housekeeping

“Change does not roll in on the wheels of inevitability, but comes through continuous struggle.”
~ Martin Luther King, Jr.

We’ve been doing a lot in 2021, and you'll see some fascinating new language-based products from us in late 2022.

Looking back, in 2021 we launched a reliable and quant-friendly new ESG data feed which has gained traction and already powers sustainable ETFs. We also launched a global stock predictive model, which continues predicting well.

Will see some of you in Miami at BattleFin Jan 26-27.

We wish you a peacfeul and prosperous 2022!

Richard and the MarketPsych team

References

MacKay, C. 1841. The South-Sea Bubble. Crown Publishing: London.