The Madness of Men
Author: Patrick Blair
I can calculate the motion of heavenly bodies, but not the madness of men.
–Sir Isaac Newton
The great physicist Sir Isaac Newton was credited with this quote while caught up investing in the infamous South Sea Stock bubble circa 1720. He was said to have lost his fortune in it. Why couldn’t one of the world’s greatest geniuses figure out the stock market of his day? Elena Holodny writes at Business Insider, “He let his emotions get the best of him, and got swayed by the irrationality of the crowd.”[1]
South Seas Stock Bubble
Financial markets’ movements are baffling to even to the smartest people. To be sure, there are some who are better at navigating markets than others, but perhaps the greatest danger is believing that we can understand them and predict them. They are notoriously unpredictable.
Proverbs 24:4-5 says, “Do not wear yourself out to get rich; do not trust your own cleverness. Cast but a glance at riches, and they are gone, for they will surely sprout wings and fly off to the sky like an eagle.” Are you trying to one up the market by making risky bets? Is the great majority of your wealth invested in financial markets?
Today’s Madness
Over time, today’s madness might seem tame by future standards. But, as of September 2021, these things seem like complete madness.
The U.S. and most other nations severely locked down their economies in 2020, but the U.S. stock market has gone up over 100% in the last 18 months.
Millions of people recently lost their jobs and have been unable to make their housing payments, and yet median housing prices in the U.S. have risen by 16% in the last 18 months. Rents have also dramatically risen.
The U.S. Government and Federal Reserve keep filling the financial system with stimulus, but income inequality is viciously rising. Short-term relief appears to be fueling long-term difficulty for the great majority of the population.
The U.S. national debt is now $28.8 Trillion dollars. The amount of debt is rising exponentially.
The U.S. national deficit is at all-time highs because of recent stimulus spending and Congress is mulling over another $3.5T spending bill.
Over the last year, the prices of used cars has been rising. As a historical rule, cars have always depreciated rapidly.
Though many people are running out of money and credit to borrow, many refuse to take jobs, even though the pay rate for those jobs has dramatically risen.
The price of oil futures was negative in April 2020 but is now trading at about $74 per barrel.
Bitcoin was less than $4,000 in 2019 but went as high as $64,000 in 2021. As of today, it is just over $42,000 a unit. China has made it illegal to use; in contrast, El Salvador has adopted it as a national currency. Many major U.S. corporations are using it to diversify their capital holdings.
The stock market is trading at all-time highs, yet corporate earnings are relatively flat.
Conclusion
It’s impossible to know how long the madness will go on and what will become of world financial markets. Don’t try to game the system and get rich quick like Isaac Newton by going in heavy on the latest hot investment. Don’t assume everything is okay and have all your eggs in one basket (e.g., the stock market or the housing market). Instead, accept that you don’t know what might happen and learn to widely diversify your wealth.
To learn more, read my book Faith and Finances. Also, check out this promotional video for my church course: Building Faith and Finances.
[1] Isaac Newton Lost a Fortune on England's Hottest Stock (businessinsider.com)