m...3 - Interesting interview. Mixed sentiment on the guy's science, but the conclusion is worth discussing.
I strongly think that the bubble is either half full or half empty (depending on whether you are bull or bear in perspective).
Forces like gravity and natural economic consequences demand that the bubble passes. It is hard to imagine paying $20 now in return for what doesn't even add up to the promise of a cup of coffee per year for the forseeable future. Sucking the bubble down.
But demographic forces and federal monetary policy are thrusting liquidity into the capital markets faster than the natural absorbtion capacity. Bloating the bubble up. We are in balance, but still within the bubble.
Sooner or later, monetary policy will change. It always does. Sooner or later the demographic forces will change too. Gravity remains.
Thus, gravity wins in the long term. And we all know this and we all accept it as the inevitable unfolding of some distant future. And we all know therefore that the best strategy is to get out first. Do not be the one left to turn out the lights. It will be far less cheery in that case.
And we all think individually that knowing this is the right strategy that we will somehow pull it off. You, mindmeld, all the bulls I speak to agree: "yes I will pull my money off the table, just as soon as I've earned it back. And before all of the other fools out there."
Because in theory we all agree. The issue however is one of execution. If there was enough money floating around to make good on these promises of rotation... well then we shouldn't worry.
But this is the tragedy of the commons scenario. There is not enough grass on the common to feed all of the sheep. And everyone knows it. Each of the sheep has a perfect right to be there, and no sheep by itself is to blame. Just collectively, they face mass starvation. And no sheep's own interest is served to preserve the flock. So there is no appropriate individually initiated strategy that saves the flock.
Same here.
Some pocket has to part with every dime. Sitting in a circle and swapping certificates is all fine and good until the music stops. A whole bunch of CSCO investors just found out the hard way that unrealized paper gains aren't worth as much as realized capital gains.
A little bit of wet finger math leads me to believe that there are more pockets stuffed with promises than there are pockets stuffed with cash. Which suggests that the first people to get the cash win. "The Devil take the Hindmost".
Two outcomes: (a) a cliff, and (b) no avoiding the plunge.
On the cliff. Driven by crowd psychology. The boomers are notorious for doing things in waves. Distribution works as long as the rate of outflow is less than or equal to the money inflow. But if it ever exceeds inflow, then price goes down, increasing urgency to get out, increasing outflow and wow! Plunge city. Let's say you were planning to bail at 3900, and at 3850 the market suddenly loses 100 points and your friends mutter "here it comes"... What are you going to do? What if it happens at 3600? Or more insidious. What if your bailout point is 3600 and you get the third successive 100 point rally taking you from 3550 to 3650? Do you bail?
Then say to yourself "I am not alone".
So the collective will herd themselves to the edge of the precipice and those rushing in from behind will jostle the leaders over the cliff.
We are likely to trigger several limit down sessions on the next selling wave.
No avoiding the plunge? Apply game theory and assume normal crowd psychology. 95% of the crowd is following the strategy, 80% believe they have an above average ability to claim the cash. Some will get hurt, some will win. 20% will win big, 80% will not. And half will lose for sure. It always works that way. Zero sum games, the 80/20 rule, and the law of averages are ruthless this way.
But where is the cliff? If we knew in advance, then the strategy would be to sell just before. But executed en masse, this meta strategy moves the cliff!
This guy says 39xx NASD is plunge point. So word gets around (get out at 3900). You hear 3900, so you plan 3850 and so on. Maybe it happens at 3000, maybe at 4800... "surprise".
This is a delicious and invigorating game of chicken.
I never liked chicken as a kid. The odds of me being in the 80% are not the kind I desire facing at this stage of my life. My approach is slightly different. I don't care where the cliff is right now. I am trying to guage how far above or below the current ground level the bottom will be. If it is above current level, then buying now is fine. If it is below, then buying now is not fine. Very simple: establish a position that will net me neutral or positive at the very base of the cliff. Then I can experience the cliff as an observer with perfect sight and no risk.
So I churn out math and models. My tools of surveying the landscape. And I have determined that we are above ground level. By 30% to 50% or more. This kind of negative return in ANY timeframe is unacceptable.
Even a conservative 6% per year is way better!
Now, maybe I could be clever and take some bigger gains and bet that I am a more clever lemming than the rest of them. A lot on the thread have this stance. But I have been proven wrong in the past. I claim the safety of inferior cleverness. Nothing to be ashamed of.
And furthermore, I don't need any more money. I would be disadvantaged however if I ended up with less. So best advised to adopt a low risk strategy.
If my unpalatable future fails to unfold, then I will still end up with more money than I need because that's what I already have. And many other more courageous people will join me in this pleasant state of affairs. Can that be so bad?
If it does unfold, then my patience will reward me with some great future buying opportunities. Can that be so bad for me?
So my personal stance is based on a calculated risk/reward ratio that has worst case = neutral, best case = win.
John. |
