If the Pentagon takes UFOs seriously, so should markets

Now that the Pentagon takes UFOs seriously, it's perhaps appropriate to consider some more mundane aspects of the phenomenon — namely, what it means for markets. UFO data will probably remain murky and unresolved, but if UFOs of alien origin become somewhat more likely (starting, to be clear, from a low base rate), which prices will change?

Or, to put the question in market terms: Where is the alpha in Alpha Centauri?

To consider one concrete scenario, suppose that the federal government fulfills its legislative promise to release all classified information about UFOs this summer, and several senators hold a press conference and announce that alien origin cannot be ruled out as a hypothesis. This hardly seems impossible.

My first prediction is that most market prices won't move very much. In the short run, VIX might rise, because some traders might wonder if there is more than meets the eye to this announcement. But as investors realize that senators really are puzzled, and there are no little green men locked up in a facility somewhere, VIX would probably return to normal levels.

If aliens really are among us, they do not seem determined to influence the course of worldly events. They have neither destroyed us nor saved us, with say a cure for cancer or world peace or a proof of Goldbach's conjecture. Their vehicles, if indeed it is vehicles we are observing, dart away when approached by Navy pilots. Even if you took the extreme view that one million of them are living under the ocean — would that affect Wall Street expectations for the number of iPhones sold next year? Maybe it would increase demand for a fly-by camera option.

More plausibly, if the unidentified flying objects are of alien origin, they are unmanned drone probes with advanced software, programmed to observe and stay away when approached — much like how drones on our planet record nature shows for David Attenborough.

If you know you are being watched, what exactly do you wish to buy more of? I would bet on defense stocks to rise, whether or not there is much we can do to defend ourselves against this alien presence.

Of course investors could not be sure that these alien drone probes will merely observe us forever. They might be observing with the purpose of rendering judgment. If they are offended by our militaristic tendencies, the quality of our TV shows and our inability to adopt the cosmopolitan values of "Star Trek" over the next 30 years, maybe they will zap us into oblivion. But that kind of systematic risk is hard to insure against. After such an act of obliteration, neither gold nor Bitcoin will do you any good.

My main prediction is that alien UFOs will be bullish for the dollar. The U.S. government seems most closely connected to the UFO phenomenon, for whatever reason. (Maybe its pilots fly more sallies and record better data?) In any case, if alien UFOs become more likely, an informational advantage would accrue to the federal government. And the dollar already has a tradition as a safe haven currency.

Not qualified to give investment advice. Photo: Bloomberg

I do expect various mini-markets related to the potential alien presence to proliferate. Minor religions will form around the supposed aliens, and they will market devotional icons and T-shirts. More tourists will visit wherever the aliens are supposedly hanging out. How about selling NFTs of some of the more convincing alien videos?

Others will look to celebrate and take more risk. So perhaps go long Las Vegas, Miami and New Orleans.

"Mork and Mindy" reruns might return, and Hollywood will take up a newfound interest in space operas. Most of all, the aliens will be entertaining, and sometimes tragic, lodging themselves in our consciousness but also staying in a somewhat separate moral universe, removed from most of our daily practical concerns.

Most of us would get used to the idea of alien presence without quite believing in it. As The New Yorker makes clear, many Americans believed in alien-origin UFOs after World War II, as did many American policymakers. It might have spurred greater interest in the space program and science fiction, but it didn't affect most aspects of American life, nor did it seem to drive markets.

Never underestimate the capacity of markets, like humans, to adapt. Just as many of the strangest parts of our lives can come to seem normal, so Wall Street can find a way to do business with just about anybody — aliens included.

Tyler Cowen is a Bloomberg Opinion columnist. He is a professor of economics at George Mason University and writes for the blog Marginal Revolution. His books include "Big Business: A Love Letter to an American Anti-Hero."

Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.