"You still have an investment culture that's still too heavily steeped in the most recent experience rather than rationally basing it on the evidence of the day. We had such a terrible crisis of "?08,' it's not surprising to me that the first slowdown of the recovery brought back deflation-depression mentalities with vengeance.â?
-James Paulsen, chief investment strategist Wells Capital Management
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Once again, we see that investors have been thwarted by their own flawed wetware
James Paulson almost gets this right, commenting indirectly about the Recency Effect. Its not the Culture that got this wrong; rather, it is the flawed wetware that everyone carries around within them that keeps them focused on what just happened, rather than what is about to happen.
At least the Wells Capital (aum = $342 billion) strategist understands the impact on psychology of what just happened; the various strategists and economists cited by Bloomberg appear overly focused on the recent past, while potentially ignoring the near future. (You Humans make me laugh!)
Hereâ??s Bloomberg:
â??Investors who heeded warnings about falling home sales, record European budget deficits and the debasement of the U.S. dollar can nurse regrets after the 2010 bear market didn't happen.
The Standard & Poor's 500 Index has gained 9.8 percent this year and 20 percent since hitting its 2010 low on July 2, defying pessimists from Robert Prechter to Albert Edwards and Nouriel Roubini, who expected an economic slowdown that hurt equities. Bulls, who looked like losers when the benchmark gauge for U.S. stocks fell 16 percent between April and July, were vindicated by the rebound that added $2.6 trillion in value.â?
The bottom line for investors: To be successful, it helps to learn to recognize the differences between inputs already reflected in the economy and markets, versus those that have not had their impact yet. Housing, credit crisis, crash, recession have already worked through the markets.
Focus on the next crisis â?? not the last one . . .
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Source: Bear Market That Wasn't Gores Pessimists Amid Rebound Whitney Kisling Bloomberg, Dec. 6 2010 http://noir.bloomberg.com/apps/news?pid=20601087&sid=aY_bsJID2zAY&pos=6
â??Bulls, who looked like losers when the benchmark gauge for U.S. stocks fell 16 percent between April and July, were vindicated by the rebound that added $2.6 trillion in value."?â?
Were the bears back then crowing just as much as the bulls now â?? almost certainly. What have I learnt timing is everything.
Forget the crowing â?? this is about psychology.
Unless of course you can use the crowing to point to psychological extremes that coincide with tops and bottoms!
The last crisis was rooted in deflationâ?¦the next one?â?¦.more delfationâ?¦â?¦hence the basically flat return in the S&P over past 10 yearsâ?¦so those of us who focus on the last crisis are correct to do soâ?¦.one yearâ??s performance is a mere blip in the really â??Big Pictureâ? BR
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BR: Deflation? WTF are you talking about?
The last crisis was rooted in Ultralow rates, radical deregulaton, misplaced incentives, and crony capitalism. Deflation was not the cause of the last crisis!
I really beg to differ with your statement:
â??Housing, credit crisis, crash, recession have already worked through the markets.â?
From your bubble in the the NY markets, it may look like theyâ??ve gone through the markets; theyâ??ve only been contained. What has worked through the markets is the result of the Fed and other Central Banks attempts to kick the cans down the road and the participantsâ?? feeling of comfort in the Bernanke Put.
Efforts by the Fed and the Feds to this point have not solved the housing crisis; they have been about trying to prop up prices, which still have to drop more and the implications of which are being hidden by mark to make believe accounting at the banks. Nor the credit crisis, which is only being kept at bay by huge interest rate subsidies to the banks at the expense of savers combined with pumping asset prices higher so that the banks have been able to make money at the prop desks.
[...] Barry: Focus on the next crisis, not the last one. (TBP) [...]
David Einhorn video on CNBC from this AM
Actually says the exact same thing â?? focus on the next emergency, wonâ??t be the same as the last
http://www.fundmymutualfund.com/2010/12/video-cnbc-always-eloquent-david.html
I like Einhorn â?? smart guy, outside the box thinker.
The US needs to re-invent itself but it seems that Wall Street and the other Corporate backers of Congress donâ??t really want that to happen?
Meanwhile, who cares, those investments in China/Vietnam/Bangladesh/Indonesia are doing just fineand we only have to pay workers USD 100 per month.
Is this a great country or what?
I am not smart enough to know what the next crisis is going to be and when itâ??s going to occur. The best I can do is to listen to those who predicted the last one (Rosenberg, Roubini, Taleb, Ritholtz.) What theyâ??re saying is that â??leaving on the tableâ? 10-15% in 2010 is a cheap way to protect yourself from the risk of something much, much bigger happening in the near future.
For the reference, Bernanke, James Paulsen, and the advertising/marketing department of Goldman Sachs (also known as CNBC) did not predict the crisis. Moreover, they didnâ??t believe (or did not publicly admit) there was a crisis even when the financial economy was in the middle of it!
OK OKâ?¦focus on the next crisisâ?¦â?¦JUST DONâ??T FORGET ABOUT THE 4 YEAR CRISIS WE HAVE CURRENTLY BEEN GOING THROUGH. You can look at all the mini-crisis events that have happened during the MAJOR crisis, and worry about th next mini crisis that is coming. BUT DO NOT LET GO OF THE FACT THAT WE HAVE ENTERED A LONG WAVE DOWNWARD BUSINESS CYCLE. Do not forget that in January 2009 we officially entered a depression (yes, this will be verified in the future about economists who do not hav an agenda) and do not forget that NOTHING FUNDAMENTALLY has been changed, corrected or fixed since the original crisis hit us. Crisis comes and go, but the BIG PICTURE crisis has not left yet, and has no intentions of leaving any time soon.
Until the debts are exposed and the pain is takenâ?¦.. we will just continue to live the lie known as Ponzi America. Go ahead Barryâ?¦.again tell everyone how nuts I am for believing this.
There's also psychology involved in Three-card Monte, selling knock-offs of branded merchandise, and illusion/magic tricks (in which case, people know that what they will see is false, yet they still pay to see it).
I agree with Mike in NOLA "â? there has been no resolution of bad debt, no meaningful reform of the structure that allowed the crisis to evolve, no claw-backs or prosecutions, and no real-world indication that anything but the markets has improved (and, BR, as you yourself pointed out, $600B of fresh liquidity is juicing the markets).
As always, buying into a bubble is easy "â? and there's plenty o' psychological pressure to run with the herd. Getting out in time is the problem (lots of huffing and puffing undone by a pin prick).
The illusion that we're headed for some kind of economic stability and/or real growth is a very good one, but only a willing mark forgets the reality outside the theater (those who couldn't afford a ticket to the show, due to the last con-game they fell for, know all to well that not a goddamned thing has changed).
This Christmas season will see new bad debt added to the ledger. We'll begin seeing the fallout from that in around 6 months, but it will only manifest on a personal/individual level. Compared to the real debt being amassed on behalf of the banks and markets, it will hardly be noticeable when looking at the big picture.
Many years ago when I used to write articles for a newsletter on trading system design (no junk science crap, mostly showed simple trend systems with all sorts of position management overlays, etc), I used to point out my beliefs about human behavior as a part of the system design. After all, it is the sum total of a marketâ??s participantâ??s beliefs that determine the next tick, the next trend, etc.
My general take is that humans â??linearly projectâ? their most recent past into the future to arrive at â??their current beliefâ? about the world around them. The stronger the emotional impact those memories have upon them, the more focused is that linear projection. Itâ??s a natural tendency that is extremely useful in many parts of life.
Over short periods of time, a linear projection will match a 4th order polynomial curve for example. The problem becomes when that linear projection begins to diverge from the real-time experience obviously.
We live in a world where markets have a large random component coupled with a highly non-linear general price action. Upon that environment are humans, all doing their linear psychological projections of what the future will bring (all done subconsciously of course). Hence the reason we have cycles of â??gurusâ? who appear to be geniuses when their most recent prediction happens to match what happened. This has always been the case and most likely always will be the case.
â??Focus on the next crisis "â? not the last one . . .â?
Waitâ?¦.the European/PIIGS Debt Crisis is over and solved?? Iâ??m so frikkin confused.
Making 3 or 4 paragraph rants about the past crisis, the future crisis, or any other such nonsense doesnâ??t make you any more prepared for what you think is going to happen. If you missed the major portion of this rally from March of 2009, than you have a serious FLAW in your investment/trading methodology. You need to fix it. You need to find out why you missed it. As Barry has pointed out in several recent posts it is probably more than likely because you were already pointed in a direction, a direction your mind wanted you to go.
You simply must trade and invest without any preconceived notion of certainty. May I suggest some type of mechanical/technical system. As of now, the majority of you, despite reading 10 hours worth of blog posts each day and trying to sound smarter than the next guy, donâ??t have clue one what you are doing. If you missed this rally in any measurable sense, you need to take a look in the mirror.
It is the only way to becoming better. I suspect however, most of you have no desire to be better. You win my losing.
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