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Morning Commentary

Irrational Excuses

By Charles Payne, CEO & Principal Analyst
10/11/2017 9:37 AM
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Question of the Week

How far should government go to nudge its citizens into choices they claim would help them avoid self-destruction?

Post your answer below.

Yesterday, all three major indices hit all-time highs during the session. The Dow actually closed at the 47th record high since inauguration day.  And yet, this market is far from being overly confident. Hence, the best-performing sector was utilities. The only loser was consumer discretionary.  

S&P 500 Index


Consumer Discretionary (XLY)


Consumer Staples (XLP)


Energy (XLE)


Financials (XLF)


Health Care (XLV)


Industrials (XLI)


Materials (XLB)


Real Estate (XLRE)


Technology (XLK)


Utilities (XLU)



There was widespread strength in the market, underscored by a nearly two-to-one ratio of winners versus losers.

Market Breadth
















Nobel Prize

Richard Thaler, the winner of the 2017 Nobel Prize in economics, is considered the father of behavioral economics, which advanced the notion that people generally do dumb things that are against their own self-interest.

Applying psychology to economics isn’t new. However, the behavioral analytical movement sought not only to study people but also to learn to manipulate or “nudge” behavior to mitigate or to avoid dumb decisions when people are left to their own devices.

The rub is that people are moved by short-term satisfaction even if it harms long-term outcomes.

The madness of crowds has always moved markets from the infamous Tulip Bubble to the Technology Bubble.  When it reaches a fevered pitch, few can resist the excitement of short-term financial gains.  Even Sir Isaac Newton considered the fourth smartest man that ever lived chased an infamous bubble and lost all his money.

Ironically, after making money in the South Sea Bubble early on, Sir Isaac Newton warned his friends and anyone else that would listen that it was a scam and was doomed to fail.  It didn’t collapse right away; however, he watched his friends get rich. Racked with regret, Newton got back into the bubble.  

There was room for Newton to make a profit, but he didn’t.  When the decline began, his regret turned into pride along with his ego, and a long ride lower.  Keep in mind, the stock market contained a few South Sea stocks. Bubbles are known to burst and vanish into the history books. 

Moreover, as underlying fundamentals improve, so does the justification for higher market value.  I think it’s been irrational for so many people to sit and wait for a 10% pullback or a 20% correction. Even a good old-fashioned crash probably would only erase a year or two of gains – I have a database of folks from March 2009 that are still waiting for a second leg down lower.

These types of horror stories become lore and are used by those that choose risk-aversion as excuses for not investing or doing things that could materially improve their lives.

When I say the word “irrational,” most people would think the next word would be “exuberance.” The opposite of that phrase is “reasonable apathy.” That is not how America or any great fortune was created.  Risk aversion isn’t an American characteristic, even if it’s misplaced from time to time.






Why people behave irrationally when it comes to investing
Fox News video - Why people behave irrationally when it comes to investing

During President Bush’s term in office, the phrase “ownership society” was used a lot but never got the full-throated support from the administration that President Obama put behind things like solar energy.  Later, the Wall Street bailout came along and the idea of capping individual risk and rewards took off along with disdain for ownership.

Now, we are cheering the “sharing economy,” but there is an ownership component beneath the surface.

Even Wall Street which lives and dies on gains from investments prefers to call good days in the market “risk on” versus “risk off” for down days. This seems antithetical to the reality that unvested cash loses value to inflation over time.

Governmental Nudging

Mr. Thaler’s “nudging” methods have been adopted by governments to influence a variety of issues including:

Nudges from governments and businesses with automatic enrollment in 401Ks have resulted in millions of people having some savings. Currently 58% of all 401K participation comes from automatic  enrollment, up from 8% in 2000. We should be concerned when it curbs choices that we want to make.

Today’s Session

This morning Delta (DAL) posted earnings that beat the street by $0.06 sending shares higher, although drifting from the initial spurt.  The company gave itself a well-deserved pat on the back:

“While we faced a number of challenges this quarter, including multiple hurricanes and an earthquake in

Mexico, I am proud of how Delta people responded and still delivered an outstanding performance this quarter,” said Ed Bastian, Delta’s chief executive officer. “Having just completed the busiest summer travel season in our history, we have good momentum, a determined team and a solid pipeline of initiatives to grow earnings and margins.”

My only problem with 17 of the 20 busiest days in the history of the company over the summer and momentum into the remainder of the year, is why the company only gave in-line guidance?  Perhaps its typical management caution, but it would have been great to get stronger guidance.

General anxiety in the air this morning, not to be confused with fear, is just investors looking for a catalyst to help this slow-motion liftoff with a triple digit session that sends the message the party isn’t over…its only just beginning.



Not at all

Karin on 10/11/2017 9:42:51 AM
It's NOT the government's job to protect us from ourselves... only to protect us from each other. If one believes in The Constitution and freedom, leave us the hell alone! We still have free will, the problem is government is too involved in "fixing" poor choices, thanks to a century of "progressive" thinking.

kev on 10/11/2017 10:25:52 AM
I agree and yet despite the failures of government intervention throughout history there is a huge movement in this country to make Big Brother more like Big Mommy & Daddy. CP

Charles Payne on 10/11/2017 10:31:38 AM
Who is to say that the direction the govt is nudging is the right one?

Mike on 10/11/2017 10:44:58 AM
Touche! Great Point. CP

Charles Payne on 10/11/2017 10:50:23 AM
I have swamp land in FL; would you buy it?? Do you believe the Washington established swamp!!!

Jim Puppan on 10/11/2017 11:10:07 AM
Any time the gov gets in the middle the people lose! Look what obama did... It will take decades to unwind this disaster...

Gregg on 10/11/2017 11:14:40 AM

Eric Wagoner on 10/11/2017 1:26:19 PM
If the people think they should resist their government's nudge, they should resist it. The government in 'we the people' land is not the opponent, it's the summarized consensus.

Patricia Flynn on 10/11/2017 6:18:37 PM
"life, liberty and pursuit..." We own our bodies and thus our life. We are free to do as we please and to pursue that which pleases us; as long as it doesn't affect anybody else's rights. I do not see any place in "liberty" for any government at any time. These don't just apply to humans, sense they are "self-evident" they are observable among all critters (alas, bottom line, we are critters). Good comments, all.

jim johnson on 10/12/2017 6:10:59 PM
Im going to get out of market the day before the big selloff, promise. Next im going to jump at the bottom and do it again and again and again....

Mark C on 10/14/2017 2:42:40 PM
Government is force, never nudge. It has no role in forcing people to do anything outside of its Constitutional authority.

Daria Schooler on 10/19/2017 8:49:28 AM

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