Reflections on the If You Can’t Beat Em Join Em Meme

Posted on April 3, 2009

In attempting to understand the key psychological drivers of the current market rally, I think that an important meme is: If you can’t beat em’ join em’.

It seems certain to me that any rational observer recognizes that current government economic policies, e.g. printing of trillions of dollars to save insolvent banks, are simply insane and bound to provide no help whatsoever to the real economy.

However, at the same time, I believe that the vast majority of people feel completely powerless against this financial idiocracy. Moreover, they realize that many firms, e.g. Goldman, are simply making a fortune of the financial crisis, and stand to profit enormously from the Fed bailouts, notwithstanding the criminal source of income.

In the face of this , the only rational conclusion, since we all need to survive and move on with life, seems to be: If you can’t beat em’, join em’.

If there will be no repercussions for financial fraud, and if the Fed stands ready and willing to print another couple of trillion to support failed banks, what else can we do other than join in this game? This thought process is clearly playing a role in the current rally.

It’s difficult to argue with this meme, as I myself have used it to justify purchases of various stocks recently. However, can this argument lead to a sustainable bull market?

I believe that it can’t. Ultimately the stock market is a social game built on trust. We buy shares because we trust in the underlying companies, we trust that the financial statements are not fake, and we believe that other people play by the same rules. Basically, people hold onto shares because they believe in the companies and they believe other people believe in the companies. But, if there was widespread belief that the only reason to buy is because some players are being subsidized by the government, and are being allowed to legally falsify financial statements, then is there really any underlying trust in the system? At some point massive selling must resume, since nobody really believes in what they are buying and everyone is just waiting to unload at the first sign of danger.

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