Droids or clones – who’d make the better investor on Wall Street?

You can tell I’ve been watching Star Wars, again… There just aren’t many things to watch when your wife is Japanese. Lock, Stock and Two Smoking Barrels didn’t go down too well. About halfway through, my wife said, “Who is the main character?”

Anyway, one of the themes of the Star Wars films is the war between our future worlds of biological science and robots. Will the nature of life change dramatically as our ability to master nature extends to our own bodies? Or will we master the world around us by creating even more intelligent robots and artificial intelligence (AI) to make life even easier? Will we change, or will we change the world around us, in other words.

For now, I can’t even get my TV antenna working and my car keeps rapidly locking and unlocking itself every now and then…

But that’s nothing compared to the absurdities and inefficiencies of the financial system. Ex-Bank of England (BoE) governor Mervyn King, whose books and work outside of monetary policy is as good as the current monetary policy is bad, reckons central bank digital currencies (CBDCs) are a “solution without a problem”. His wife must do the family banking then, because this is patently absurd to anyone who has actually tried to use the financial system.

Not that the promised efficiencies of CBDCs are a solution, they’re just a radically different problem. That’s why we’ve come up with a plan to escape both.

Let’s stick to the mandate: investing and Star Wars.

Wall Street is about halfway through Star Wars: The Clone Wars’ plot. If passive investors are the clones, alleging that if we’re all the same, then we’ll all win. Just put your money into the stock market index and mimic it. Stocks go up in the long run, after all. Don’t try and be different, you’ll only fail.

But, like in the Star Wars spinoff cartoon, The Bad Batch, things can go wrong.

The index includes stocks that are past their prime, with only worse to come.

It costs money to manage an index fund and the timing of the rebalancing causes divergence.

People can’t manage their own wealth to mimic the FTSE 100. They have to trust someone else to do it for them. Which introduces counterparty risk.

And stocks can go sideways for really, really long periods of time. The Dow Jones Industrial Average was at the same level in 1982 as 1916, on an inflation-adjusted basis. At least it had decent dividends back then…

More than anything, aiming for mediocrity is really a bit odd. But I suppose it’s the nature of the beast if you try and plough all of society into funding their retirement via the financial markets. You have to promise that mediocrity is acceptable.

In the end, it’s all just a subsidy for the financial industry. But back to that in a moment.

The opponents of passive investors are the droid army and their algorithms. With the right programming, these machines can defeat any investor. They try to be faster, more disciplined (less human) or they stick to exploiting specific, narrow loopholes, making them one-trick ponies.

Just like in Star Wars, the war may be the focus, but the real story is behind the scenes. Because the big institutions of Wall Street are playing both sides. It’s all about creating an industry that’s big in order to sustain the parasite rather than helping the host. And nothing sustains parasites like a battle between two sides – the ploy that the villain uses in Star Wars in order to become the emperor.

Wall Street used to be about helping real companies to access financial markets to finance real-world expansion. Now it’s about furthering Wall Street’s fees. And it was never about handing over easy returns to savers.

Governments have added all of us and our supposed retirement savings to Wall Street’s list of “clients” that they can suck blood out of.

And so, we’re left with financial markets that are mere shells of their reason for being in the first place. They are dominated by droids looking to scalp the next fellow and clones looking to mimic their peers as close as possible in order to survive as long as possible and collect the maximum amount of fees as a result.

If you’re paying attention to the battle between the droids and clones, you’re missing the plot, as I suspect my wife did.

Of course, there are ways to play the game, once you’re aware of it. That’s pretty much why Fortune & Freedom and our publishing company exist, after all. We show you the alternatives that you won’t hear about elsewhere.

My old friend, Sam Volkering, who first told me about cryptocurrencies in 2012, is preparing to reveal how AI will change the world and financial markets radically. He has a plan to potentially profit from those changes. If you want to be on board, you can sign up for free here.

If you can’t wait to find out more, here’s an interview that I did about how AI will change The City and Wall Street – will it be for the better, or worse?

Until next time,

Nick Hubble
Editor, Fortune & Freedom