Financial topics

[Higgenbotham]

I found freddyv's post amusing and incredibly naive because it was obvious that he thought he would be the last man standing and not me. Nobody who fights a bubble can ever be sure they will be left standing before it's over. Bubbles are extremely dangerous and I have seen them kill many a trader by heart attack or suicide. When traders are in the mode of barely hanging on or have a long string of losses, they become mentally imbalanced and are pretty much indistinguishable from trolls. I just had a (former) trader who blew through a million dollars fighting this bubble and is now broke and working a part-time job seriously ask me for money. We had 2 or 3 e-mail exchanges where he was nicer than his old self and I feigned a lot of agreeability expecting his next step would be to try to con some money out of me and I wasn't disappointed.

[John]

> I found freddyv's post amusing and incredibly naive because it was
> obvious that he thought he would be the last man standing and not
> me. Nobody who fights a bubble can ever be sure they will be left
> standing before it's over. Bubbles are extremely dangerous and I
> have seen them kill many a trader by heart attack or suicide. When
> traders are in the mode of barely hanging on or have a long string
> of losses, they become mentally imbalanced and are pretty much
> indistinguishable from trolls. I just had a (former) trader who
> blew through a million dollars fighting this bubble and is now
> broke and working a part-time job seriously ask me for money. We
> had 2 or 3 e-mail exchanges where he was nicer than his old self
> and I feigned a lot of agreeability expecting his next step would
> be to try to con some money out of me and I wasn't
> disappointed.

Well, as you and I have discussed many times in the past, this is
known as the Principle of Maximum Ruin.

[Higgenbotham]

> I found freddyv's post amusing and incredibly naive because it was
> obvious that he thought he would be the last man standing and not
> me. Nobody who fights a bubble can ever be sure they will be left
> standing before it's over. Bubbles are extremely dangerous and I
> have seen them kill many a trader by heart attack or suicide. When
> traders are in the mode of barely hanging on or have a long string
> of losses, they become mentally imbalanced and are pretty much
> indistinguishable from trolls. I just had a (former) trader who
> blew through a million dollars fighting this bubble and is now
> broke and working a part-time job seriously ask me for money. We
> had 2 or 3 e-mail exchanges where he was nicer than his old self
> and I feigned a lot of agreeability expecting his next step would
> be to try to con some money out of me and I wasn't
> disappointed.

Well, as you and I have discussed many times in the past, this is
known as the Principle of Maximum Ruin.

This is the kind of investment environment where logic doesn't prevail. The John Hussman types who are eminently sensible and logical don't get rewarded and can be ruined. The trader who I mentioned above was a decent trader. He made his money trading Nasdaq stocks during the circa 2000 bubble years. Imagine somebody being able to navigate that and it can been seen how nonsensical the current environment is.

[John]

> This is the kind of investment environment where logic doesn't
> prevail. The John Hussman types who are eminently sensible and
> logical don't get rewarded and can be ruined. The trader who I
> mentioned above was an decent trader. He made his money trading
> Nasdaq stocks during the circa 2000 bubble years. Imagine somebody
> being able to navigate that and it can been seen how nonsensical
> the current environment is.

That's exactly why it's so dangerous. People remember the Nasdaq
crash, and think it wasn't so bad, and that they even made money.
People remember the 2008 financial crisis and think it wasn't so bad,
and that they even made money from it.

I heard one analyst say that we can learn a lesson from the 1987 crash
("false panic") because the market fell 25%, but recovered in two
months. So there's nothing to worry about.

What's especially interesting to me is the inversion of reasoning.

In 1987, the senior people had personal memories of the 1929 crash,
and they assumed that it would happen like that, and so they panicked
and sold off 20%. Then they realized the situation was different from
1929, so they bought back again.

Today, memories are inverted. The senior people (like Hussman)
remember 1987, 2000, and 2008, and they think that it's always like
that. They particularly believe that Bernanke's helicopter money
can save the world from a financial crisis, as he apparently
did in 2008. They actually believe that a 1929-type crash
is literally impossible today.

They think that they know how to beat the market because they
understand what happened in 1987, 2000 and 2008. That's why a
1929-type crash is possible today, when it was impossible in 1987.

[Higgenbotham]

Re these representative quotes from the Financial Topics thread (this thread), all within a week of the March 2009 stock market low:

I truly believe we might have the clearest case of a bear market going forward as anytime I have experienced or studied, and that includes the Great Depression Era.

STRONGLY AGREE, THIS IS THE STATEMENT I AGREE WITH MOST

John, you may have forgotten that I posted this a couple weeks ago, which is what prompted me to try and find out what freddyv is up to now. This was, in my opinion, an eminently sensible and logical post at the time it was made (as were the others quoted including posts from you and aeden) and still pertains. The problem for freddyv was what happened between then and now which won't change his prevailing conclusion but it was delayed enough to make the timing of it from a trader's standpoint very dangerous and problematic.

[Higgenbotham]

This is a short video from January where Greenspan says we can't grow our way out of this, "not now."

https://www.youtube.com/watch?v=tBlGYK_L-oQ

[John]

> This is a short video from January where Greenspan says we can't
> grow our way out of this, "not now."

> https://www.youtube.com/watch?v=tBlGYK_L-oQ

Interesting interview. Here are some comments from the trolls:

mes williams - The only way to save the U.S. economy is to jail the
owners of the federal reserve and return to our constitution. It
worked for Iceland. Greenspan, quit lying. Damn crook.

whiskers78753 - It's funny how the guy who started this whole bubble
economy now wants to lecture people about fiscal responsibility.

John Strumph - why bother listening to this old fool. Didn't the Real
Estate Bubble happen during his tenure at the Federal Reserve?

Ducati Drew - This guy almost brought us the economic
apocalypse....better listen to his wise words. Unbelievable.

Ken Sarasin - Never right Greenspan

Brent Warren - I became wealthy by doing the exact opposite of just
about everything that Greenspan has suggested in the past. For the
amount of wealth he has aided in eliminating from the American people,
he should be thrown in jail. Brooksley Born was the true American
hero who tried to warn all of us but we chose to follow the
disasterours policy recommendations put forward by Greenspan.

John C - why are we listening to this guy?

Charlie Tuna - I JUST HOPE THAT GREENSPAN LIVES LONG ENOUGH TO WATCH
THE FALL OF THE PHONEY SYSTEM THAT HE STARTED! He looks to be in poor
health in this interview.

[Higgenbotham]

Then, in this video (near the beginning), Bernanke is asked whether we can get the 3.2% growth that the administration is targeting and he basically says no.

https://www.youtube.com/watch?v=qfQoiQHNXiw

[Higgenbotham]

> This is a short video from January where Greenspan says we can't
> grow our way out of this, "not now."

> https://www.youtube.com/watch?v=tBlGYK_L-oQ

Interesting interview. Here are some comments from the trolls:


The sad thing about the trolls is they didn't evaluate what Greenspan said. Greenspan's logic is undeniable. Sometimes, Greenspan will be asked about a topic that is more difficult to assess, but that is not the case here.

[Higgenbotham]

"It's the same crummy "really doesn't work" market when you have the speed of light."

At 2:31, Jim Cramer, commenting on the market during the machine driven move on February 5 with the Dow down 1,000 points.

Funny.

https://www.youtube.com/watch?v=YwvAcbEiWIU

SOLBLA, the "speed of light bubble leakage analogy"