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Narrative Economics & the World of Investments + Hedge Funds


Nobel Prize winner Robert Schiller brought the term “narrative economics” into public consciousness as he sought to uncover how narratives went viral with a high contagion rate and how these narratives shaped economic events.


One of the key narratives that we see dominating the news agenda through the last century is that of replacement of human labour as a result of automation. This has in the last two decades, evolved into artificial intelligence, which, in this context, refers to robots (hardware) and software replacing humans in their jobs. Such is the concern in the minds of the general public as well as governments across the globe they grapple with productivity and the notion of being meaningful employment (or widespread unemployment, for that matter).


Perusing data from Google Ngrams which basically tracked terms found in books/literature across time, it was found that the term automation reached peaked at four different periods, starting from the 1960s, 1980s, 1990s and 2010s. Most recently, this has shifted to artificial intelligence, within the same context of AI replacing jobs. The fears arose because of the Great Depression in the 1930s which were still fresh in the minds of those who were still around in the 1960s and the narrative was also passed down to the period of the 1980s and 1990s. The narratives themselves lent to the unwillingness of people to spend too much on consumptions and investments, and also an unwillingness to engage in entrepreneurship and speculation.





Interestingly, this narrative is linked to the stock market as well as the real estate market. And because publishers are interested to publish books that flow with the zeitgeist so as to maximise revenue on book sales, each trend given not just on Google Ngrams but Google Trends as well, gives us a glimpse of how narrative economics work to inform our decision making.


What are people searching for and how can we triangulate the publicly available data to make sense of it in actionable ways?


As a design/brand communications agency, we have worked on branding campaigns that buy into current narratives for financial institutions. This includes financial literacy fiestas as well as media buyouts to set the tone of brand presence within the CBD area. And whilst these campaigns and their metrics served their purpose in that particular season, what we have found in our recent search has been particularly interesting with regards to the general investment psyche and the current climate.


The recent narrative with regards to investments and the investment climate has been that of "looking ahead". This is the very reason why tech stocks, "disruptive innovation", and cryptocurrencies/blockchain have been triumphing over fears, and also why future-looking funds like ARK Invest has been getting a lot of attention, especially since it is publicly listed and must report its transactions at the closing of each trading day.


Let’s take a look at the investment climate and how it relates to the interest in the tech /speculative investment arena, before delving into why it is so popular.


Interest rates have been dismal for a long period of time, and with the Federal Reserve’s foot still on the quantitative easing accelerator, this backdrop typically favours stocks that are more future-looking and thereby seen as “higher risk” as compared to the tried-and-proven utilities and usual suspects in blue-chips.

In the recent 1.5 years from March 2020, we have seen terms like “hodl”, “stonks”, “bitcoin” (which we will discuss some time later), “crypto”, “to the moon”, “buy the dip” driving the trading and investment narrative ad nauseum. This has been fuelled, no doubt by stimulus cheques as a result of the pandemic.


But more importantly, seasoned investors may have to rethink whether this is really a move from “dumb money” of which, they should now pull all their money out and wait for a major crash, or would this “perceived madness” actually be the common sense of the market or what we like to term as the dominant market narrative.


We employ the adjective “dominant” because once it is set in motion, it takes hold of the market and allows a certain trajectory to be taken, for better or for worse.

Let’s examine where this all lies with when we combine data from Google Ngrams which charts terms used in books and literature, which can only be available about two years after given that it takes time to index those books, as well as Google Trends, which is current.


Pertaining to the term “stock market crash”, Google Ngrams shows a dipping trend (up till 2019), albeit it is still higher than the 1930 peak, during which the Great Depression was experienced.


stock market crash search term in books
Stock Market Crash search term on Google Ngrams


Shifting our focus on Google Trends (see chart below), by introducing terms “bond yield”, “invest”, “market crash”, “inflation”, “hodl”, from 2004, we see an interesting trend emerging. The words “invest” and “inflation” were very closely intertwined from 2004 to 2017. Even through the Great Financial Crisis, of which we saw the search term “market crash” spike in Oct 2008. Just before the crash in October 2008, in April 2008, there was an inversion in the search trend between “inflation” and “invest”, where “inflation” cut above “invest” in Google searches.



Google Trends search - bond yield, invest, market crash, inflation and hodl
Google Trends search - bond yield, invest, market crash, inflation and hodl


From 2017, the divergence became bigger and bigger. Even through the COVID pandemic, “invest” rose in March, which was when lockdown began for many developed nations. In fact, “market crash” and “inflation” also experienced a spike in the same period along with "invest". This escalated into Jan-Feb 2021 where the market saw a peak before it experienced a turbulent downturn subsequently in March – May. The corrections were in the range of 20% from all time highs but most of the elevated stocks retained their gains from the previous year. This level still remains elevated and well above “inflation” and “market crash”.


General overview

Whilst deeper digging would be required to mine required insights to make useful investment decisions, it would suffice to say that for the foreseeable future, the investment climate, be it for investors and traders buying into investible assets, investment literature being published, or even courses pertaining to investments, the interests in this subject will remain high. Action taken for investments will also remain high. While the fear gauge remains elevated and concerns of inflation continue to be at the back of the minds of people, they see investments as the way forward.


We can say that this could partly be due to their understanding of the narrative to “beat inflation". This dominant narrative will cause the general public to remain invested and form a base that will hold trendlines for some time to come.


That being said, as with all pieces of investment literature, as a design/brand communications agency, this piece does not constitute investment advice. It serves merely as a outlook and a possible place for financial institutions and the commonfolk alike to attempt to formulate a fuller picture of the road ahead.


Particularly for financial institutions seeking a design/brand communications agency to craft meaningful messages for their clients or stakeholders alike, do contact our team at hello@sylnjas.com for a discussion.


As a design & brand communications agency, our work here at SYL+JAS is led by research-backed insights as well as best practices that are being shaped by shifting trends and technological advancements. Within our consulting practice with brands, one of the key engagements that we have with senior leaders is to help them understand narratives that shape macro views and affect their brands and businesses.




Buy our Compendium of Brand Communications for Financial Institutions on Amazon.


References

1. Narrative Economics (2019). Robert Schiller.


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