Social Media, A Moroccan market, Jean Baudrillard and the State of Finance

In the 1981 philosophical treatise, ”Simulacra and Simulation” Jean Baudrillard sought to examine the relationship between reality and society, particularly between the significations and symbolism of culture, media and the construct and shared understanding of our existence. Fast forward to 1999 and we reacquaint with Baudrillard's book. In the beginning of the highly successful movie “The Matrix”, which was released that year, the protagonist, Neo is seen with a copy of the book, which in his case is hollowed out and serves as his hiding place for important belongings. This Easter egg is not coincidental, setting the premise for the entire plot of the movie and touching on the deeper philosophical implications of the book's concepts.

This piece you are about to read, however, is not a philosophical dissertation on what is real and what isn’t, nor is it a lament concerning the current state of affairs of society vis-a-vis the ongoing debates pitting liberty against safety as the seemingly opposing forces governing our decision making. It is not even about blue or red pills and while it touches on deterministic theory, I am afraid the aim is a little more pedestrian as this exploratory article seeks to analyze but avoid passing judgement on the phenomenon of social media and “influencer” behaviour affecting financial markets.

The recent Gamestop saga was one of the more acute cases in point, illustrating that crowds and money move at the whims of a few enlightened figures such as Keith Gill a.k.a Roaring Kitty. Most probably the phenomenon has existed for years, decades even, in different incarnations such as Jim Cramer’s Mad Money but for most finance professionals it was typically consumed as entertainment and not as actionable financial advice. As a man with a blog covering financial markets it would be hypocritical not to acknowledge that to a certain degree I am no better than the two examples before. Nevertheless, the very existence of such platforms and their reach just further solidifies the point that we traverse a period where investing is dominated by a few “cult-leader” figures who through their “thought-leadership”, both directly and indirectly affect the behaviour of markets.

Speaking of markets, I will beg my reader to stretch their imagination and take a journey with me in an imaginary bazaar, much like the Djemena El-Fnaa in Marrakech. The Moroccan square is a vibrant assembly teeming with musicians, storytellers, snake charmers, fortune tellers and stalls. Incidentally, one translation of the name is “assembly of the nobodys” which, while it may not be the most accurate, it is probably the most representative of the point I am about to convey.

Djemena El-Fnaa

Similar to Djemena El-Fnaa, enter any Investment forum on Reddit, Twitter, Seeking Alpha, Zero Hedge, etc. and you will experience an assault on the senses. On the left there will be the Crypto crowd, with their further subdivisions depending on which coin is the flavour du jour, hashing over the problems of the metaverse. On the right, you will have the gold and silver crowd, which typically disagrees vehemently with the crypto crowd but do share a common nemesis - the Fed. Advance further and you encounter the soothsayers - the Cathy Wood’s of the world - who can foretell the future of humanity for decades ahead and the best investment opportunities almost to perfection. On the opposite side sit the short-sellers who offer protection against the great evils of the market and warn of impending doom. Subsequently we have the “bulls” which, like good snake-oil sales-men, don’t really care where the market is or should be headed as long as it's up - as expected from people who get paid on commission or as a percentage of assets under management.

There are of course the regular and, on-average, honest business people who try to earn an decent living trading in goods and services that actually provide real value for society, but their success depends to a degree on the whims of fate and thus some end up faring better than others. Things sold by the gram will always fetch fatter margins than things sold by the pound and increasingly, the more ethereal the nature of the product the better.

The whole experience is fascinating, enthralling and engaging. There is an energy in the air, a constant buzz, one could almost call it music, which gives the whole place a rhythm and flow. It affects the behaviour of all participants. That is the music played by the central bankers. They are the least visible participants in the hustle and bustle, yet their presence permeates everyone's activities while their influence consciously and subconsciously keeps everyone in tune.

I could go on wondering through this analogy but in the interest of time and not losing your attention I will end our guided tour here and segue to the point I was trying to get to ab initio. The market is real, so are the participants described above, yet the investing public at large - the real world - increasingly forms opinions and takes action according to the whims of those participants. What we have engineered is in actuality an entire feed-back loop mechanism where the market influencers create opinions and ideas which the investment public follows through their actions, which subsequently generate their own reality, only to be re-interpreted by the market influencers and so on and so on and so on.

The drawing below, which was made by a child, not by me... ...attempts to illustrate the point. Of course, it is worthwhile remembering the fact that the investing public, the financial influencers and all other participants make up the market, which in turn is an abstraction from the real economy, which yet again is made up of the market participants.

This, in a nutshell is the paradigm that puzzled Baudrillard, and while he was busy trying to understand it, others were - decades before and decades after - seeking to exploit it, and have successfully done so, because once understood, the phenomenon is... exploitable.

Value investors will remember the famous quote by Ben Graham:

“In the short run, the market is a voting machine but in the long run, it is a weighing machine.”

Right now, indeed we are passing through a phase where investing is, once again, a popularity contest of competing ideologies, of personalities and egos, facilitated by the social media phenomenon and fed induced liquidity. In the short-run the feedback loop generates its own palpable realities which emboldens some and gives comfort to others. For a seemingly small minority, its very nature is the sum of all their fears because they understand that if something cannot go on forever, it will eventually stop. Each feedback loop iteration can take the market further and further adrift from the underlying economics and natural laws which govern all ecosystems. Each feedback loop represents a copy of a copy where the original source code becomes more and more scarce. Each feedback loop represents an investing public that is slowly suffocating by continuously inhaling their own exhaust.

Are you investing as you are because you agree with one or several of the social media finance personalities you follow, because you find comfort being part of their tribe and participating in the collective wisdom of the crowd? I will conclude by echoing Warren Buffett’s words reminding my reader that tweeting, liking, re-sharing, meme-making and looking at the prices is not investing, just as much as watching a football game and dispensing opinions on it does not actually make you a football player. Indeed, American Idol demonstrated that one can make more money from music by passing judgment (typically a sophisticated sounding British accent is required) than by actually expending effort writing music, lyrics or actually performing. The test of time proves that financial markets do succumb to this "influencer economy" behaviour repeatedly but also that the season finale typically ends in tears.