richard5za wrote:> I must say there were times during this bear market rally when I
> doubted my own sanity.
You and me both.
But I just don't believe that it's impossible to see another leg up
in the stock market.
Right now, there's a great deal of confusion. The mainstream
analysts have no idea what's going on. There are some non-mainstream
analysts who realize how great the danger is, but anyone who talks
about it is quickly marginalized.
I saw Joe Kernen on CNBC gloating the other day about how dumb the
"bears" have been. He was mocking all the people who said the market
would go down, and laughed at them in view of the "best" quarter for
the S&P in many years. He epitomizes the worst of the mainstream
The "mainstream bulls" believe that the may pull back slightly for a
few days, and then will take off again.
The "mainstream bears" believe that there will be a quarter or two of
slightly hard times, and then will take off again.
The "mainstream" is guided by the following beliefs:
- The possibility of another Great Depression has been completely
eliminated by the clever policies of the Obama administration.
- We almost got spun into a Great Depression a year ago when Lehman
collapsed, but Geithner, Summers and Bernanke got us out of it
through bailouts, stimulus, and quantitative easing.
- Thus, nothing that happened prior to WW II is relevant.
- Thus -- and this is the most important belief of all -- the worst
MUST be over, because the financial crisis has now lasted over two
years, and nothing since WW II has lasted this long.
- Thus, any "green shoot" is a sign that an explosive recovery is
imminent, and anything else (like the increasingly disastrous
unemployment numbers) are "outliers," and irrelevant.
The main thing is that they can't believe this crisis isn't over. No
crisis in their lifetime has lasted this long, so it's IMPOSSIBLE
that this crisis will continue.
Probably the most egregious villain in this belief is Paul Krugman,
who won the Nobel Prize in Economics because of his hatred of George
Bush. This summer he declared that the crisis was over, because of
his love for Barack Obama, which is derived from his hatred for
George Bush. If one were inclined to be an unpleasant person, one
might indulge in some Schadenfreude over Krugman's recent purchase,
for $1.7 million, of a Manhattan condo that had been in the market at
$1.85 million for over a year (402 days).http://www.bloomberg.com/apps/news?pid= ... 6QtJEQRJCI
It's once again time to post this quote:
John Kenneth Galbraith in The Great Crash - 1929 wrote:> "A common feature of all these earlier troubles [previous panics]
> was that having happened they were over. The worst was
> reasonably recognizable as such. The singular feature of the
> great crash of 1929 was that the worst continued to worsen. What
> looked one day like the end proved on the next day to have been
> only the beginning. Nothing could have been more ingeniously
> designed to maximize the suffering, and also to insure that as few
> as possible escaped the common misfortune.
> The fortunate speculator who had funds to answer the first margin
> call presently got another and equally urgent one, and if he met
> that there would still be another. In the end all the money he
> had was extracted from him and lost. The man with the smart
> money, who was safely out of the market when the first crash
> came, naturally went back in to pick up bargains. ... The
> bargains then suffered a ruinous fall. Even the man who waited
> out all of October and all of November, who saw the volume of
> trading return to normal and saw Wall Street become as placid as
> a produce market, and who then bought common stocks would see
> their value drop to a third or fourth of the purchase price in the
> next twenty-four months. ... The ruthlessness of [the stock
> market was] remarkable." (p. 108)"
This is the text from which I derived the Principle of Maximum Ruin
so many years ago -- that the current stock market will ruin the
maximum number of people to the maximum extent possible. The rally
that started last March, and is ending just now (or may not even be
ending) has sucked huge amounts of money from short sellers, and will
suck more huge amounts of money from those holding stock.
I think it was Matt1989 who kept asking me, several years ago,
exactly how the Principle of Maximum Ruin would work, and I told him
that I honestly didn't know how it would work, only that it would
But now we really see well it works. A lot of people were comparing
this rally to the 1930 rally, and when this one lasted longer, they
said, "See? This isn't like the Great Depression. This rally is
lasting much longer, so it's OK to assume that the market will keep
going up and up." Thus you get people like Joe Kernen gloating.
As Galbraith said, "Nothing could have been more ingeniously designed
to maximize the suffering, and also to insure that as few as possible
escaped the common misfortune."