Recently I sat down with ManMar to get his views on our markets. Below is the unedited transcript of that interview.
Erik: Thanks for coming in. I’m sure it was a long trip from Mars.
ManMar: Not as long as you would think, with a little help from warp drives and worm holes.
Erik: My producers tell me that you are curious about our financial system here on Earth.
ManMar: Yes, I have a few questions if that’s o.k. with you.
Erik: Fire away.
ManMar: First, what is this “investing” thing we keep hearing about?
Erik: For us, investing is an activity where you give your money to someone else who assures you that they will return even more of it to you sometime in the future. That’s the purpose of investing – to make our money grow over time.
ManMar: That makes sense. We do something similar on my planet although we don't call it investing. We call it Happiness Building. Our ancient forbearers once used a currency like your dollar, but now we use “happiness credits” instead. It’s a better system because happiness credits always go up in value – never down.
Erik: Yeah, we haven’t figured out the whole money thing yet. If we tried to convert to happiness credits, some hedge fund billionaire would probably find a way to corner the market. I think we have to get rid of greed first. How did you guys do it?
ManMar: Oh, no. We like greed. In fact, we encourage it. The funny thing about greed is that the more happiness credits you accumulate, the less happy you become. So, it’s sort of a self-regulating thing.
Greedy Martians live in fortified palaces on the outskirts of town. They live in fear that the rest of us will rise up and attack them and take their happiness credits.
They also fear the taxman, even though their happiness credits can’t be taxed. This is a lonely, isolated life for them, which is why they score so low on HQ (Happiness Quotient) tests.
Erik: Interesting. But let’s get back to the question of investing on planet Earth.
ManMar: I don’t understand why an earthling would give his money to someone who says they will give you back less than you gave them at the beginning. To us, this simply doesn’t compute. How do you explain it?
Erik: It’s complicated.
ManMar: I can handle complexity. Go on.
Erik: Some investors believe that very bad things are headed our way, so they seek safety in government bonds even though they know that they are guaranteed to lose money.
ManMar: Respectfully, that makes no sense. On our planet we have something called the “Mattress Account.” When things look shaky, we just pull our money out of the banks and out of the market and hide it under the mattress. Well, not literally, but you get my point.
Erik: I do get your point. We have mattress accounts here too, but only poor people and drug kingpins use them.
ManMar: So, the really big investors like sovereign wealth funds, college endowments, and state pension plans choose to invest in a government bond that is guaranteed to produce a negative return? Why don’t they simply hold cash? That’s what the mattress account is for, plus, n it pays interest.
Erik: Yes, that’s what I’m saying. It’s crazy, I know, but it is what it is.
ManMar: Who are the people who make these investment decisions for the big investors? Why do they enter into a transaction when they know they will lose money? Haven’t they taken a basic economics course?
Erik: The decision-makers are either career politicians, or employees who are more afraid of losing their jobs if they take any market risk instead of buying safe, guaranteed government bonds, no matter what the rate of return happens to be.
ManMar: I guess I'll never understand the logic behind negative interest rates. No wonder my people see you earthlings as troglodytes when it comes to investing. No offense.
Erik: None taken. Hey, can I get you back here next week to discuss the stock market? It should be way more fun than talking about negative yielding government bonds.
ManMar: I will be here, and I look forward to it.