Will UFOs destroy our stock markets?
Flying saucers, usually the tacky props of comic books and weirdoes, are suddenly worth serious news reporting. Videos of UFOs taken by army pilots in 2004 and 2015 were recently released on YouTube with the official endorsement of the US Navy; fighter jet pilots talked matter-of-factly about their UFO sightings on prime time TV; and former heads of US intelligence agencies and even ex-president Barack Obama confirmed there is footage and records of objects in the skies that we dont know what they exactly are. We cant explain how they move, their trajectory.  Later this month the US Congress will listen to presentations of top military and intelligence officials on UAP (Unidentified Areal Phenomena, as flying saucers are called now to rid them from the stigma of nuttiness) to debate implications for US security. I have to admit: I do not care. The little green women from outer space on their glittering craft defying time and space would have had ample opportunity to shoot us to smithereens if this is what they intended. There are many things we cannot explain closer to earth meriting our attention, and many things we can explain yet chose to do nothing about it, like wars, poverty and galloping climate change. What interests me more is how the story about UFOs will spread and how it may impact on our economic behaviour. In 2019, at the eve of the Sars-Cov-2 pandemic, the economist and Nobel laureate Robert Schiller published Narrative Economics, claiming that commonly held beliefs and shared stories would move markets more than anything. Narratives, Schiller thinks, can proliferate and mutate virus-like into conviction epidemics which force the very outcomes we fear or hope for. The story of the flying saucers may take off, or quickly die down. According to Schiller, the infection rate of collective beliefs is determined by shared experiences and news feed; peak convictions can be reached fast or slow, their contagiousness only slowed and extinguished through herd immunity  a sudden change of public interest as other infectious topics enter the public arena. Whether the story of UAPs will ever go viral, we cant tell. If it does, the reaction of consumers and producers of goods and services could either stifle growth in a wave of end-time-pessimism, or, quite to the contrary, induce a desperate boom, celebrating the last days on earth. We worry about another mutation of the virus, yet seem to ignore that the whole financial system is increasingly tied into the crypto narrative  If such scenarios sound outlandish  they are. But so are all our panics and exuberances. We ourselves cause booms and busts, obsessing with a dominant narrative. The stock markets since March 2020 vindicate Schillers theory. One of such infectious narratives pointed out by Schiller was the Bitcoin story, spiked with all the essential ingredients for a tall tale: a mysterious founder, a steadfast, sworn brotherhood of followers persecuted by the establishment, glittering celebrities becoming converts and a cornucopia of riches raining down on the have-nots. Schiller offered this example in 2019, when a Bitcoin changed hands for a mere USD8,000. Today, even after their thunderous downslide two months ago, Bitcoin are still worth USD36,000 (at the time of writing). A lot has been said about crypto currencies and I dont want to opine whether they are a valid asset class, a means of payment, or virtual merchandise like loot boxes offered by gaming companies. Whatever a Coin is or is not, many people who have signed up to it early enough sit on sizable gains now  a fact acknowledged with chagrin by erstwhile dismissive fund managers and now embraced by top-in-class financial firms which ride the Coin momentum with feigned devoutness. It is a bit like denim with artificial holes, or worn crotch-between-the-knees: nonsensical perhaps and ridiculous, but a demonstration of youth and angry resistance cunningly exploited by the establishment. Betting on Coins and Tokens is neither a lottery nor a Ponzi scheme, no matter how much we silverbacks may fume. It is like collector cards. No fraud involved. As long as the excitement lasts, everyone will hold a winning ticket. Neither regulators, nor tax authorities, neither central banks nor governments can stop the train while its moving. Iranian and Chinese authorities  not prissy in choosing their weapons of clampdown  have so far failed to curb the game. The Chinese mine and trade regardless, hiding behind virtual networks while the Iranians trigger power cuts. It eats a lot of energy after all to mine, trade, mint or squirrel away all these coins. Setbacks and losses do not discourage the movement. Like the proverbial shoeshine boys in New York offering stock tips right into the Great Depression, crypto-holders will sit on their losses in hope for the next upswing. They have not much to lose in societies where all cards are stacked against them. Its anarchic, yet apolitical: Nobody seems to question the validity of the capitalist system in its entirety. The real question for us retail investors, either joining the crypto bandwagon or ignoring it, is how the whole economy could be punctured by a sudden rout. We worry about share valuations, alarming signs of inflation, another deadly mutation of the virus, yet seem to ignore that the whole financial system is increasingly tied into the crypto narrative. Professional investors, exchange traded funds, and banks and brokers providing anchorless credit for this craze are fuelling instability. Margin trades are offered calmly in the hope to hear in good time when the music stops. During the recent crash of Bitcoin, Ethereum and Dogecoin  a crypto joke nobody, not even its creators, takes seriously, but is worth 90 billion US dollars regardless  our financial system has allegedly shown great resilience. Stocks did not wobble, with the exception of crypto exchange Coinbase with its income firmly tied to the value of trades. I dont think this is the way we should look at it. Wild volatility is caused by what is essentially a very thin trade. Not more than five per cent of the total, one-trillion-market in crypto currencies is traded on a daily basis. This means that for the faithful youngsters  many still sitting on sizable gains  selling is not on the cards. They see this as an intergenerational fight lasting many years into the future and they are willing to sit it out. In other words, we have no idea how a real market rout will look like once the narrative will change for good  neither financially, nor politically. Smug asset managers riding this bull do so at their peril. Fads come and go, and UFOs will keep coming too. Yet they are utterly benevolent in comparison with a flash change in the cultural significance of crypto currencies. The purpose of this column is to broaden readers general financial knowledge and it should not be interpreted as presenting investment advice, or advice on the buying and selling of financial products. andreas.weitzer@timesofmalta.com  Andreas Weitzer, Independent journalist based in Malta