Road Kill on the Greenspan Highway

You have heard the phrase, “Frozen like a deer caught in the headlights.” The phrase is incorrect.

I am an expert in deer that get caught in headlights. Also in broad daylight. Also at dusk. So far this year, I have hit three of them. One of the collisions cost me several hundred dollars to fix my brand-new 1993 Dodge van. (If you ever hit a deer with your Lexus, you will wish you drove a 1993 van.) Another collision somehow merely dented slightly the front end of my luxurious 1986 Honda, the car my wife refuses to ride in. Given the fact that I was going about 40 miles an hour when I hit that deer, propelling it upside down across the road, the lack of damage (to the car) was something of a miracle.

Let me assure you, a deer caught in a car’s headlights doesn’t stand still. On the contrary, it goes forward. These animals think they can outrun a car by running directly in front of it . . . or even by walking. They have no understanding of what a fast-moving car can do to them.

They remind me of investors.

One of these deer started running from the far side of the road on my left. It didn’t run across it at a 90-degree angle. It ran forward at about a 30-degree angle, as if it was trying to head off my car. It whacked the left side, knocking the side view mirror inward, making the glass pop off and fly into the car. Then, having learned that hitting a car is not productive, the deer angled off to the left back into the brush.

These animals often go in pairs or trios. The first deer spots the car barreling down the road, and it runs across the road. It’s time to hit the brakes, because one or more deer may follow the first one that has just crossed the road and headed into the brush. The followers pay no attention at all to the fast-approaching car. They follow the first one dutifully, not always at a run. They trust the judgment of the first one, which had a head start.

As I said, they remind me of investors.


A deer decides to cross a road. It instinctively moves forward when it’s scared. So, it sees a car and decides to run. But it runs only forward. I have hit five of them, and they all have been moving forward when I hit them. It never occurs to them to stand still, or else turn and run back into the brush behind them. They see the trees across the road, and they imagine safety. They see a car coming, and they do not compare their speed with its speed. Fear = run forward: this is the limit of a deer’s response to a car. Headlights or not, a scared deer runs forward.

The deer that is second or third in line follows the leader. If it sees a car coming, it gives little visible awareness of the fact. The first one makes a judgment to move across the street at some rate of speed, and the followers match this rate of speed. If deer #1 walks, they walk. They stay in line.

They are the equivalent of mutual fund investors. They want to know they are doing the right thing. They follow the crowd.

Squirrels are different. They run alone. You never see three squirrels trying to cross the road at once. A squirrel will look, stand still, make a decision to run forward, stop, and then make another decision. Sometimes the squirrel makes it. Sometimes it’s thump, thump. But it usually gets hit while it’s moving. It may be moving forward or reversing its field. But at least it isn’t programmed to move forward in every instance. It doesn’t play follow the leader.

They sit still, look at the looming crisis, run, stop, look again, and then try to get away. Sometimes they wait too long. But at least they give the impression of trying to assess the threat and select a proper response.

Squirrels are like investors who buy individual companies.

There are more mutual fund buyers than buyers of individual shares. This was not true two decades ago, but it is now. Investors want safety in numbers. They want to follow the crowd. When the market changes on them, the early ones get across the road. The late-starters don’t.


The squirrel is a loner. It is willing to make its own assessment of risks and rewards. It moves fast, but then it stops. That’s what gets a squirrel run over. It stops. It just can’t make up its mind. It keeps reassessing the situation. Then it tries to get out of the way. If it would just let a car speed over it, it might survive. It sits immobile in the middle of the road, which is safer than any other location if the car is almost upon it. But it refuses to sit still. It always decides to run.

The deer in a line lets the lead deer make up its mind. Once the lead deer decides to move forward, which it always does, the followers proceed at the same pace.

The deer by itself runs straight ahead. It leaves the safety of the far side of the road in a vain attempt to get to safety on the other side. It thinks it can outrun a car, no matter how fast the car is moving.

If they were pure squirrels, more investors might survive. A squirrel feels no compulsion to run into the street. Its problem arises when it has made the move into the road, and then a car comes. It gets into the freeze-run-freeze-run mode.

Most investors are pure deer, and usually deer following a leader. They hear of this or that trend, and they get in line. They want some other person to take the lead. There isn’t a trend to follow until there are some lead deer. Investors feel comfortable following the lead of an industry or sector in some fund. They think there is safety in numbers.

There isn’t. The people in a mutual fund stay in because most others are staying in. They keep their eyes on the guy in front of them. They would be better off by paying attention to the approaching vehicle.


What has amazed me about deer is that they don’t have any response other than moving forward when they see a car. They don’t stand still or move backward. They know only one direction: forward.

This car is being driven by Alan Greenspan. Greenspan has learned to drive, as they say, ahead of his headlights. When darkness falls, he drives faster. He has become confident in his ability to beat the odds.

Investors, beware.

It should have become obvious to any intelligent investor a decade ago that the world’s stock markets will have to be liquidated when the baby boomers of every Western industrial country hit retirement age. When the American stock market’s dividend rate went below 2%, with fund management fees at more than 1%, anyone with an ounce of sense could see that income generated by stock dividends will not be able to support retirees. Retirees will have to sell their shares to get their hands on enough money to live on.

Now the Federal Reserve System has used money creation to force down the federal funds rate to the 1% range. Savings accounts and bonds are now paying a third of what they paid two years ago. There will be no alternative to liquidating capital — stocks, bonds, savings accounts — to generate income unless rates go back up. But if rates go back up, this will knock the stock market onto its back again.

Nevertheless, investors are now going back into stocks. Corporate insiders are selling like there’s no tomorrow, but the equity fund managers are buying. Investors are pretending that the car is not fast approaching. They keep their eyes only on the hind quarters of the equally naïve investor in front of them. They keep moving forward.

They don’t care about economic fundamentals. They make no attempt to time their entry into or out of this market. They make no assessment of how near the car is or how fast it’s going. They have decided to move forward, and the details regarding the car don’t interest them.

They know there must be a sell-off at some point. They don’t care. They assume that they will make their money, sell their shares, and find a high-yield investment, despite the fact that the baby boomers will start retiring in 2011. They assume that the next decade will be a replay of the 1990’s, which was a replay of the 1980’s. Their instincts and the investment gurus tell them that most of the time the stock market goes up. “Most of the time” will protect them. Most of the time, deer get across a road, too, as long as it’s a country road.

What saves deer is that they stay off the interstates. But this is what investors refuse to do. They have decided to cross where the traffic is high and increasing. The more that the Federal Reserve pumps in new credit money to keep the economy from tanking, and taking the stock market with it, the brighter the headlights become. But the deer know only one response: keep moving forward. Don’t change course.

September 4, 2003

Gary North is the author of Mises on Money. Visit For a free subscription to Gary North’s newsletter on gold, click here.

Copyright © 2003