Narrative Machine: How Stories Shape Markets and Influence Investors

Key Quotes

"Narratives have always been weaponized meaning good politicians effective politicians have always understood the power of a good story to answer the question why why should you vote for me why should you favor this policy this is what good politicians are great at they're great at presenting their vision of what reality is what's changed today is that everyone is in on that act everyone is now trying to tell a story about how to think about their company's earnings this central bank's monetary policies you really saw this change with the great financial crisis and the fed starting to use forward guidance starting to use their words to impact markets"

Ben Hunt explains that the use of stories to persuade has always been a tool for effective leaders. He highlights that the shift today is that this practice has become widespread, with companies and central banks now actively constructing narratives around earnings and policies, a trend he traces back to the Federal Reserve's use of forward guidance after the 2008 financial crisis. Hunt argues this demonstrates a fundamental evolution in how influence is exerted.

"well i think you can tell the difference between storytelling that is describing what happened that's just filling the airtime if you will of giving you a reason why stocks went up or financials went down today i think what you want to look at though carefully is the effort that's made by federal reserve by ceos pundits who are trying to be prescriptive they're trying to tell you a story about what should happen in the future it's a it's an indication of the effort that that company that central bank that institution or that investor who's talking their book they're trying to give you an indicator they're trying to convince you of a certain course of action in the future and you should pay attention to it because if it's a well told story and it gets traction it works"

Ben Hunt distinguishes between descriptive storytelling and prescriptive storytelling, suggesting that the latter, which attempts to guide future actions, is more significant for investors. Hunt argues that when central banks, CEOs, or pundits make a concerted effort to tell a story about what should happen, it indicates they are trying to influence behavior and should be heeded if the narrative gains traction. This highlights a key signal for identifying potentially impactful market narratives.

"well i used the word missionary because there's a famous thought experiment around what we call the common knowledge game and around how narratives and stories spread through a crowd and it really goes back to old fashioned missionaries who go to some some other country some foreign country and stand up and start preaching the word that's what a missionary is and that's what spreads the word of a story a missionary is something who someone who people are paying attention to so could be anyone from the chief economist at goldman sachs or the federal reserve chair to roaring kitty that that defines missionaries that defines missionary you got it"

Ben Hunt defines "missionaries" as individuals or entities that people pay attention to, likening them to historical missionaries spreading a message. Hunt explains that these influential figures, whether a chief economist, a central bank chair, or an online personality like Roaring Kitty, are crucial in disseminating narratives and shaping public discourse. This concept clarifies how specific actors can amplify stories within a crowd.

"sentiment is i think a very weak read to try to understand what changes people's minds and this goes back to the initial idea of well how do you measure information and a narrative is information a story is information the way you measure it is not by its truthfulness or its accuracy you measure its strength by how does it does it change your mind does it does it does it make you think something differently than you thought before sentiment whether you use nice words or mean words to talk about something it never changes your mind it never changes your mind the only thing that can change your mind barry is a better story"

Ben Hunt argues that traditional sentiment analysis is insufficient for understanding how people's minds change, contrasting it with the power of narratives. Hunt explains that sentiment, regardless of its tone, does not alter fundamental beliefs, whereas a compelling story, by presenting a new perspective or framing, can genuinely shift an individual's thinking. This distinction emphasizes the unique persuasive power of narrative construction.

"a coordination tool simply means that the speaker the opinion giver is trying to shape opinion and behavior to a certain outcome that's all it means a politician wants to shape your behavior to vote a certain way central bankers typically want to get you to go farther take more risk with your portfolio than you otherwise would a coordination tool simply means using your words for effect not as an accurate description of what you actually think but to use your words to change behavior that's what forward guidance is all about that's what advertising is all about it's not to share with you the actual workings inner workings of their mind it's to try to change your behavior that's what a coordination tool is"

Ben Hunt defines a "coordination tool" as language used not for its literal truth, but to influence the behavior and opinions of others towards a specific goal. Hunt illustrates this with examples of politicians seeking votes and central bankers encouraging risk-taking, stating that tools like forward guidance and advertising function as coordination mechanisms. This concept clarifies that the intent behind communication can be to drive action rather than simply convey information.

"it's difficult you remember the x files where fox mulder was saying you know i want to believe and that's true for for all of us humans we want to believe and so when somebody tells us a believable story and they're a believable source then our predilection is to say oh that's interesting i believe what's crucial to do barry and it's so hard i mean i've been doing this professionally for 35 years and i i still get will get wrapped up in a story i'll read a tweet or it'll make me really mad or i'll read a story and go oh that's really interesting i gotta look up companies to invest in that theme the crucial thing barry is not to think the stuff is oh it's always a lie or they're trying to fool you it's just to maintain some critical distance the words are being spoken to you to get you to change your behavior they're trying to change your mind they're trying to convince you of a story that's not bad that's what we humans do and it may be a story that you do end up believing that's fine too the crucial thing is always though to step back and just ask yourself why am i reading this now why is this story being presented to me now just do that just do that simple step and it will give you just a it'll give you a beat it'll give you a beat just to step back so you don't rush headlong into believing a story because you want to believe it that's all you need to do"

Ben Hunt acknowledges the human tendency to want to believe compelling stories, even for experienced professionals, and advises maintaining critical distance rather than assuming deception. Hunt suggests that the key is to pause and question the timing and purpose of a narrative's presentation, emphasizing that this simple step provides a moment for reflection. This approach helps investors avoid being