Tuesday, October 25, 2011

The Bigger your house the more denial you need to sleep at night

Dead dollars don't bounce

On a scale of 1 to 10 as to how cooked things are, this goes to 11. Articulate, well reasearched and incredibly thought provoking. Also the closest I've come to being AU convert.

Posted by bellwether @ 02:21 PM (1908 views)
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23 thoughts on “The Bigger your house the more denial you need to sleep at night

  • general congreve says:

    STOP PRESS!!! BELLWETHER IN ‘GOLD RAMPING’ SHOCKER!!!

    If you buy gold now I will be severely disappointed by your lack of conviction. However, what will irk me most will be to see you jump ship to safety now, after all your anti-gold ranting over the years. So, just forget those bothersome thoughts of gold that trouble you at night and instead dream soundly of deflation my friend.

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  • general congreve says:

    Particularly liked this quote from Chapter 4 which is presented at the link, which pertains to the six psychological stages of denial (of the coming economic collapse). Some on HPC are here at stage 2:

    Second Stage: Market Cycles
    In the Market Cycles stage, an increasing number of individuals, businesses, and financial analysts come out of denial and begin to notice that something is wrong. They can see home sales falling, consumer spending slowing, jobs being lost, credit drying up, and stocks on the decline. They may even be able to recognize an individual falling asset bubble, like the declining real estate bubble. But few people at this stage will recognize any yet unpopped economic bubbles, let alone be able to see an entire multi-bubble economy. Instead, they will explain the falling stock market, the failing real estate market, and the overall economic downturn in terms of historical up and down market cycles. While not as cozy as the Denial stage, the Market Cycle stage provides some significant comfort, too, because every “down” cycle is guaranteed to be followed by an “up” cycle.

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  • general congreve says:

    @2 – Nice try Techie!

    This Bull Becomes A Bear – Beware!
    by Deepcaster

    Published : December 07th, 2007

    Deepcaster’s view is that the long-term, multi-year, case for commodities continues to be very bullish.

    However, in the short-term (i.e. in the next few weeks or very few months), the price prospects for many commodities are indeed bearish, with two, and possibly three, exceptions.

    Many of the foregoing reasons for weakness in Crude Oil prices apply to the Precious Metals as well.

    A bouncing U.S. Dollar, a U.S. recession*, a worldwide economic slowdown, and, especially, Intervention (see Deepcaster’s November, 2007 Letter at http://www.deepcaster.com) all should “conspire” to determine Precious Metals prices in the near term.

    Article is 4 years old and it would appear that the precious metals he is talking about (he does not mention them by name) are platinum and palladium, as these are used widely in industry and demand for these falls in a recession.

    Now, stop being naughty and trying to spoil my schadenfreude at Bellwether’s suggestion that he may be about to turn tail and run.

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  • cynicalsoothsayer says:

    [email protected] You clearly didn’t read it properly. While it says some investors may panic buy gold, it isn’t gold ramping.

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  • general congreve says:

    Oh yeah, I read this the other day and thought of you:

    From:

    Don’t blink the hazards of confidence

    Most people in the investment business have read Burton Malkiel’s wonderful book “A Random Walk Down Wall Street.” Malkiel’s central idea is that a stock’s price incorporates all the available knowledge about the value of the company and the best predictions about the future of the stock. If some people believe that the price of a stock will be higher tomorrow, they will buy more of it today. This, in turn, will cause its price to rise. If all assets in a market are correctly priced, no one can expect either to gain or to lose by trading.

    We now know, however, that the theory is not quite right. Many individual investors lose consistently by trading, an achievement that a dart-throwing chimp could not match. The first demonstration of this startling conclusion was put forward by Terry Odean, a former student of mine who is now a finance professor at the University of California, Berkeley.

    Odean analyzed the trading records of 10,000 brokerage accounts of individual investors over a seven-year period, allowing him to identify all instances in which an investor sold one stock and soon afterward bought another stock. By these actions the investor revealed that he (most of the investors were men) had a definite idea about the future of two stocks: he expected the stock that he bought to do better than the one he sold.

    To determine whether those appraisals were well founded, Odean compared the returns of the two stocks over the following year. The results were unequivocally bad. On average, the shares investors sold did better than those they bought, by a very substantial margin: 3.3 percentage points per year, in addition to the significant costs of executing the trades. Some individuals did much better, others did much worse, but the large majority of individual investors would have done better by taking a nap rather than by acting on their ideas. In a paper titled “Trading Is Hazardous to Your Wealth,” Odean and his colleague Brad Barber showed that, on average, the most active traders had the poorest results, while those who traded the least earned the highest returns.

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  • general congreve says:

    @6 – Forgot to specify it was meant for you Techie.

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  • general congreve says:

    @5 – Hmmmm, how long have you been on this site? Do I need to do the zero /sarc on, /sarc off thing the zerohedgers do (because Amercans can’t understand irony? – truly amazing to watch the fireworks when some zerohedger forgets to point out they are on an obvious the wind up, happens every time, dumb yanks!)

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  • I agree with most of that actually GC. EMH has been rubbised for quite some time now. Whats worrying is that the market is seen by most now as a fractal and because of that its probably time to move on. Having said all that again what they say is correct ” on average” is exactly right.

    However, the bell curve is the bell curve for a reason. You will find that most folks – however often or infrequently they trade – will lose money. But the ones that make it make it consistently. Here is a quote you may find of interest from Peter Brandt:

    “I think I can save a lot of time for a lot of readers who respond to me when they think I am wrong about their favorite market — be it Silver or Apple or whatever.

    I am a trader. I could care less if I am wrong or right on any particular call. In fact, I expect to be wrong on either the timing or direction on more than 50% of the calls I make. Any trader who has a win/loss ratio below 50% should also expect to be wrong every time he or she steps to the betting window.

    Let me focus on Apple Inc., or $AAPL. Yesterday I posted a chart showing an area (three day) island top pattern. This is a powerful pattern, often indicating an intermediate, if not major, top.

    I am already hearing from the Apple heads — pointing out how wrong I am on their pet stock. My response — so what! In the first place, I do not have a position — I missed the island top because I was traveling last Wednesday. I will short Apple if it rallies to 399.94. I will risk the trade to 420.11. Thus, I will carry a 20.17 risk. I will short 350 shares against a $1 million account. My total risk is 70 basis points (7/10th of 1% of trading capital).

    My targets are 357 and then 316. If I get filled and if I am right on the trade I gain 290 basis points. The trade has a reward to risk ratio of 4.1 to 1 with the lower target. The weekly chart shows a dominant trendline from the 2009 low. This trendline has four major contact points. If this trendline is penetrated AAPL could trade down to 280. That would make the reward to risk ratio of my trade 6 to 1.

    To me, a trade is nothing more than a reward to risk matrix. I could care less what Apple Computer’s stock does. It can go up or it can go down. If it goes up I lose less than 1% of my capital. If it goes down I could make 4% on my entire account from the trade.

    This is all the trade is to me. I could care less about price to earnings multiples. I could care less about the outlook for Asia. I could care less about product development. The trade is a risk point and a profit possibility.”

    I assume that makes perfect sense?

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  • techieman – you sound like you are very clever.

    For future reference, the phrase you are looking for is “I couldn’t care less”.

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  • GC – i actually was only looking for a headline…. kind of “when the last bear throws in the towel and becomes a bull” and that was the closest i could find.. I didnt read it myself, so I didnt realise it was bullish or bearish to be honest :).

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  • general congreve says:

    @9 – Makes perfect sense. If he expects to be wrong on 50% or more of the calls he makes (a market can go up or down, so the law of averages say you’ve got a 50/50 chance of calling it right, no surprises there), then he must be hoping he has the good luck to make the winning bets on positions that win bigger than his losers. Otherwise you end up trading yourself out of capital. It also makes sense that he has no vested interest in what he trades. I feel the same way about gold, I have no affection for it, I own no gold jewellery, not even a simple ring, it has no intrinsic appeal to me. My only feelings for gold are with regards to the wealth it can make me on the trade.

    @10 – I see what your getting at, when the last bear turns bull and all that. Although I’d hardly call Bellwether the last bear. When Flashman says he’s long gold that’ll be a start, but that’ll only be in our closed HPC world. When Mervyn King is running the presses hot to buy gold with devalued paper, then I’ll start to pay serious attention to the saying.

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  • well im not sure “good luck” is exactly right… its the gary player quote that im minded of … the more i practice the luckier i get ;). You cant stay in the game for a long time and rely on luck.

    Although i am first to admit there is an element of luck but i can tell you i have sold at the high of the move as often as i have been stopped out at the low, although it always feels like you are stopped out more, I have actually spent time in the past reviewing that and have found that to be around 48/52 against. That obviously is within a certain number of ticks / pips of the high or low, an exact high or low is just silly..

    GC this MIGHT interest you : He got the October 4th low around 1076 very right. http://www.youtube.com/watch?v=5AeZUVLhpKw . (he also mentions Gold)

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  • general congreve says:

    Thanks for the link, but to be honest, I am looking at the macro picture of debt, debt, debt and what that means for fiat currencies that stand behind the debt, and as such I am a long termer, as you know. Hopefully not too long term of course, as the authors of the book in the article state, some time in the next 5 years will be kick off time for US debt, with the beginning of year 2 to the end of year 4 being the most likely window.

    His comments on gold $2000/Oz do take me back to the old will it, won’t it gold $1000/Oz debates that raged a couple of years back. How quaint those discussions seem now!

    BTW, gold popping a nice $50 or so on the latest euro E-Coffin debacle 🙂

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  • General congreve, the problem I’ve had with the inflationary view to date is the lack of credible explanation as to how we get here, given the obviously dis inflationary forces at work.

    I also tend to see the debt problem as a problem of both creditor and debtor and where a problem is everyone’s, it’s also no-one’s in particular.

    What has gotten me thinking however – it helps that’s it not written by morons eg Guy Pytel, Nadeem Walayat or Zero Hedge – is the view imbedded in there somewhere that what will drive inflation will be the collapse of globalistation, and with it a collapse in demand for the currency of globalistion.

    In this scenario everyone gets poorer whether they are in the developed world or in the emerging world, and albeit that the US will remain the most prosperous country of all in relative terms, the huge international demand for it’s currency will disapate with people holding onto their own currencies, investing in their own back yard and hoarding commodities (esp oil which is finite) rather than exchange it for currencies of questionable worth – a bit like hibernation.

    Paradoxically (on this view) if you were to chose a country in which to live through this you would chose the US (which will revert to being its own biggest market) but you would not until repriced chose its currency.

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  • I’d add 2 things (1) if things do indeed turn out as bad as the book suggests, there is little to be gleeful about. Without exception everyone’s standard of living will decline, albeit that the gap between rich and poor might lessen. For many there will be huge human anguish and pain. Increased poverty and disease do not make for a better world however much one anticipates events.

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  • general congreve says:

    Disinflationary is right, to a point. Deflationary is certainly wrong. The slowing of credit, or it’s disappearance altogether does not lead to deflation (a shrinking in the money supply), just a disinflation (a slowing in the rate of increase of the money supply). This is because all previous credit has already been spent and is still flowing around the economy as money, the credit taps being turned off do not cause the money previously lent to evaporate into thin air!

    Secondly, even in the event of bank collapse, any assets, such as peoples savings that the bank holds will simply pass the creditors, they will not be destroyed. Although it is true that the value of overvalued assets like housing will ‘deflate’. But actual deflation, namely the shrinking of the money supply, accompanied by a corresponding fall in general prices and wages and an increase in the purchasing power of the currency affected, will not occur.

    Not only this, but the onerous nature of sovereign debt sitting behind most currencies will result in a devaluation of those currencies, whether by money printing to pay the debt, or by outright devaluation by the markets, if not the government itself. This is of course inflationary and bad for savers in the national currency.

    BTW, why are Guy, Nadeem and Zerohedge morons if you are starting to come round to their way of thinking?

    As for your last statement, I agree the US will remain relatively richer when their default has taken place and they’ve wiped the slate clean and can no longer afford so much Chinese made stuff. However, I would choose to stay near friends and family and choose to prepare for the future by owning time-tested, widely recognised international currency that will serve me just as well, whatever country I may wish to live in.

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  • general congreve says:

    @15 – Look, going back to one car families, affordable housing, heart transplants only for the rich and poor little Jonny not getting an Xbox for xmas is not some end of the world situation.

    Yes, there will be more poverty, most of it will be relative though, rather then real grubbing around in the gutter poverty.

    Of course, it will be still be unwelcome for people and that is nothing to be gleeful about, but at least if you’ve protected yourself then you can sleep safely yourself and feel grateful you did.

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  • GC , I am hopefully not coming round to the same WAY of thinking as the chaps cited, or even particularly to yours. In fairness their barely literate rantings tend to discredit and confuse a conclusion (which if it comes to pass) they have at best chanced upon. I really do mean that bit, and I rather hope you get it too.

    That said the article posted (and book I’m about to buy) is the first thing that has got me wondering about some of my 2009 – 2011 conclusions. Who knows if I do turn into a bug, perhaps I can take over as your less frequent and more articulate, thoughtful, and persuasive brother.

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  • general congreve says:

    @18 – The book says nothing different to anything they’ve said or me for that matter. Search bond bubble and my name on here if you need reminding:

    Who knows if I do turn into a bug, perhaps I can take over as your less frequent and more articulate, thoughtful, and persuasive brother.

    HAHAHAHAHA!!! You pompous asshat!

    Please, please do turn into a bug. Your humiliation will be complete.

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  • @19 Fck we really did waste time communicating with each other. Time to put an end to that I guess.

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  • general congreve says:

    @20 – Personally I felt it was very instructive.

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  • Suspect we think too differently for it to be of much value to either of us. Also discussions tend to become polarised pissing contest, which would be a laugh if we were having a beer but too much gets lost in translation in this format. That said you can look forward to my humiliation as a make the ignominious progression to gold ramper.

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