Our Bizarro World
In the 1960s, DC Comics introduced a fictional cube-shaped planet into American comic books known as htraE (“Earth” spelled backwards). Everything on the planet was the opposite of what one might normally expect on Earth. On the Bizarro World, as htraE was known, good was bad, up was down, right was wrong. The main characters on the planet were awkwardly inverted versions of Superman (known as Bizarro) and his companions. This concept of a backward world was later popularized in a Seinfeld episode that included Kramer working as a professional, George dating gorgeous women, and Jerry acting irresponsibly.
The comic series even profiled a salesman marketing Bizarro bonds that were “guaranteed to lose money.” And while it was funny at the time the comic was written precisely because it was laughably unrealistic, it’s actually not uncommon today. There are trillions of dollars of debt in the world yielding negative interest rates. Bizarro debt? Sure seems so.
But it’s not just bonds that have gone Bizarro. Think of the global economic rhetoric. The United States, long a champion of open markets and free trade, has been increasingly adopting nationalist and protectionist policies. Meanwhile, the communist Chinese have begun preaching the benefits of trade and globalization, as typified by Xi Jinping’s speech at Davos earlier this year. What?!? Bizarro indeed.
Just yesterday I had the pleasure of interviewing Bain Capital founder Josh Bekenstein on stage at the Yale Private Equity and Venture Capital conference. During our conversation, he noted that despite being illiquid and highly leveraged, private equity outperformed the less leveraged public equity markets during the financial crisis. I had to pause and reflect: more leverage going into a crisis resulted in better returns? Yup.
And lest you think this Bizarro World of ours has only infiltrated financial domains, think again. It’s creeping into many walks of life, and the classrooms at Yale are not immune. Last month, a friend forwarded me an online documentary (“What Has Yale Become?”) about the dynamics of expression in New Haven. The short video does a good job of explaining what’s been happening since the 2015 Halloween emails that generated national attention.
I’ve been discussing the topic of free expression with students of mine at Yale…and what some have said is both shocking and disappointing. Several students state they do not feel safe expressing controversial perspectives in classes or even with peers. Sure, it's conceivable that the students who take my classes are a self-selected conservative bunch (they are, after all, studying financial bubbles and are therefore concerned with finance...) that don't represent the student body. But even students not in my class that I've gotten to know over the years have suggested it's risky to engage in debate on topics for which there is an accepted politically correct answer. One student noted his reluctance to speak freely if his thoughts differ from the prevailing classroom dynamic: “There is no upside in doing so…I’ll be socially shamed and called out as insensitive.”
It’s particularly ironic, nay Bizarro, that this environment might be emerging on the very campus that drafted the definitive blueprint for intellectual inquiry and expression on university campuses. The Report of the Committee on Freedom of Expression at Yale, also known as The Woodward Report, was quickly adopted in spirit by many American institutions of higher education in the 1970s and beyond. The first paragraph of the 31-page document captures the essence of the report:
The primary function of a university is to discover and disseminate knowledge by means of research and teaching...The history of intellectual growth and discovery clearly demonstrates the need for unfettered freedom, the right to think the unthinkable, discuss the unmentionable, and challenge the unchallengeable.
Several paragraphs later, the report notes the critical role that free speech plays as means to protect minority opinion:
...value freedom of expression precisely because it provides a forum for the new, the provocative, the disturbing, and the unorthodox. Free speech is a barrier to the tyranny of authoritarian or even majority opinion as to the rightness or wrongness of particular doctrines or thoughts.
Compare the sentiments conveyed in these paragraphs with those that emerge from the video documentary. Could the current attempts at creating an environment of free expression at Yale instead be creating a culture of self-censorship? Bizarro indeed.
What this Bizarro world of ours has taught me is that we must constantly think about the unexpected developments that can derail our most cherished plans. What assumptions have we made that may not be valid? In the current environment of radical uncertainty, it's critical we explore multiple scenarios and consider outcomes that, regardless of how likely (or unlikely) they may seem, can meaningfully impact us.
Vikram Mansharamani is a Lecturer at the Harvard John A. Paulson School of Engineering and Applied Sciences and a Lecturer at Yale University. He is the author of BOOMBUSTOLOGY: Spotting Financial Bubbles Before They Burst (Wiley, 2011). Visit his website for more information or to subscribe to his mailing list. He can also be followed on Twitter or by liking his Page on Facebook.
POST SCRIPT: On April 17, I will be joining 30,000+ runners to make my way from Hopkington to Boston during the 121st Boston Marathon. I'm running to help support the Torit Foundation, a 501(c)3 organization that I helped found to provide scholarships to families who could not otherwise afford to send their children to the Torit Montessori School in Boston. I'm hoping to increase awareness of and support for the foundation. My objective is raise at least $10,000. I hope you'll consider joining me in supporting this worthy cause.
Learning advisor, facilitator, enabling change and high performance teams.
7 年Good observations. I think there are different shades of this bizarro world though: communists embracing free trade and globalisation is not a bad thing. We can argue about leverage and liquidity premiums. But undermining the basics of free speech, science and reason is a dangerous bizarro - full stop!
Investing Columnist at The Wall Street Journal
7 年Fantastic post.
Industrial Director / Biologics & Pharmaceuticals
7 年Clearly, most "think thanks" (including top rated universities and consulting firms) seemingly think and act as bandwagons.
Freelance Web Designer/MS Excel Developer
7 年It's probably true that most of us perceive that something is very askew in the world. From social dialog to economics, we appear unable to escape the gravity of irrationality. Expression of thought is increasingly difficult - and in some cases, dangerous - due to the increasingly massive and hostile reaction that can ensue largely because technology has allowed society to effectively segregate itself into separate thought echo chambers. In the case of social media, you need only look as far as your Facebook or Twitter feed to see incendiary, generally irrational articles and comments. Nightly cable "news" programming appears no longer moored to the principles of objective journalism but instead favors the ratings-generating partisan opinion stew where discussion based on actual facts is entirely optional. Politics, always the bastion of less than ideal behavior and outcomes, has fully intersected with reality television indeed electing one of its "stars" to the U.S. Presidency. The results so far have not been promising. The stock market, a place from which most average investors fled years ago having been burned on multiple occasions by cataclysmic economic bubbles, is on a tear. Why? By any standard, economic growth over the past few years has been tepid (GDP growth in the order of 1-2% per year) and corporate earnings, while improving, cannot reasonably explain a near 20% rise in the stock indexes in the past year. (Example: Apple's stock price is up about 30% over the past year to an all time high while its revenues are up about 3% in that same period.) The Federal Reserve appears to be taking a page out of former President George W. Bush's Iraq War book whereby key U.S. economic indicators (GDP, inflation, job growth, industrial production, etc.) are always seen to be improving but never enough it seems to allow the Fed to normalize interest rate policy. (The economy is strong enough for the stock market to shoot to the sky since the election but apparently so fragile that a 1/4 point increase in the Fed Funds rate needs to be carefully contemplated lest it somehow collapse economic growth. For all those savers out there, well, either jump into risky and now very inflated stock assets or continue to be crucified by savings instruments that effectively yield 0%.) It is not surprising that private equity funds are doing so well given that P/E ratios well north of 20 in the regular stock market are not only okay but in some circles considered *undervalued*. This of course is all based on the ephemeral notion that a political sledgehammer is about to be taken to "job-killing" regulations and the U.S. Income Tax Act so companies have plenty of room to grow into their multiples when future earnings growth is finally unshackled from, well, whatever it is that is apparently hold them back. Millennials face the prospect of massive debt from an education that will almost certainly fail to generate future employment that compensates them enough for that cost. As for housing, in desirable locales, they (and nearly everyone else) face the prospect of prices that far exceed anything resembling affordability (example: Vancouver, Canada where median annual earnings are $75,000 but a literal broken down shack of a house will cost you on average about $1 million). We've seen this sort of thing before (and indeed quite recently with the tech bubble, the financial collapse, and the real estate bubble). Pendulums always swing back eventually and things tend to be not so pretty when that turn happens.
Projects, Programmes, Portfolios, Risk, Planning, P3Os - all the Ps (and one R)!
7 年Actually the idea of investments not yielding return isn't that new. In the early days of banking it was expected - the idea of putting your money in a bank was to make it secure, not to increase in value - in fact you expected to lose a little value but at least you knew it was protected and the rate of loss was relatively small.