|
They were correct...
for a while. |
|
Try to disregard the
fact that the above chart represents the action of Dynegy stock. |
|
Use the chart to
represent -- that is, overlay -- any stock, commodity, real estate, or other
market that you follow. With that in mind, review the actions
identified below. For example, the chart could represent the DJIA since August, 2007, when that index
was approaching its all-time high: over
14,100. Ask yourself if the assumptions and
actions below were rational & correct or incorrect. |
|
Chart courtesy of
BigCharts.com |
|
Timing |
Assumption |
Action |
|
Mid 2001 |
It's going to resume its up trend. |
Buy |
|
Late 2001 |
It's going to resume its up trend. |
Buy |
|
First Q,
2002 |
It's going to resume its up trend. |
Buy |
|
Mid 2002 |
There is no way it is going any lower. |
Buy |
|
Late
2002 |
There is no way it is going any lower. |
Buy |
|
Late 2006 |
It's going to resume its up trend. |
Buy |
|
Early & Mid 2008 |
Energy prices are skyrocketing. It's
going to resume its up trend. |
Buy |
|
Each buy above was a reasonable bottom-fishing
response. Each resulted in losses, or at best, minimal short-term
trading profits. Those winning trades are nearly impossible to do
more than once in a while -- and are especially difficult in a
down market. |
|
|
Be cautious. The
US is experiencing a flight of capital. Do
not allow that capital to be your money. |
|
It is better to buy
at some time in the future on the way up and
earn a profit than to buy along the unending, downward journey
(1935-1936-style) and get captured riding along that bumpy bottom as
years go by holding
investors's capital captive,
paying interest,
and missing real opportunities. |
|
This exercise
demonstrates that the quest for a bottom
is a dangerous and unnecessary.
The bottom is always unknowable. Deadly
consequences are wrought upon those who know they know. |
|
People familiar and unfamiliar with markets
make assumptions. They
sometimes
assume that once valuations
appear to have stopped declining,
they will almost naturally reverse. That is
nonsense.
Sideway action can go
on a very long time. |
|
A bull
market is never mandated. It is possible
for markets to simply continue going
down.
Based on the potential for
monotonous prolonged sideway
movement, bottom fishing is a
costly task.
The only way to play today's abnormal markets is to accept them as the current normal, play
them accordingly, and probably wait to lose. |
|
|
People involved in markets, people
who have lived through only the post-1982 Reagan Boom, people who
are getting anxious to make money are looking for a bottom so they
may buy (gamble). Some people will jump -- no, better to use their
own term, "pull the trigger" -- prematurely
and buy (gamble). They
rationalize such aphorisms as, "It can't get much
worse", "I need to catch this bottom to make up for unearned profits
over the last months", and other juvenile rationales. |
|
|
The Great Depression lasted from 1930
to 1946. There was an embedded depression during 1937-1938. That
was -- in our opinion
-- provoked by bottom fishers in 1935-1936. Potential investors
were getting antsy searching for the bottom. The
only depressions in their real-time memories included
1920-1921 and 1907. Each of those benefited from
relatively quick recovery, so
market participants in 1935-1936 erroneously
rationalized and looked
for a bottom in 1935-1936, since their depression had already lasted
several years. They bought prematurely.
That buying pulled some recovering elements inward prematurely
at too-high prices.
Because of that premature buying, the ongoing
down trend was enforced in 1937-1938 when follow-through
buying did not materialize. Early buying created
quicksand collapsing prices in 1937-1938. |
|
Market participants
today recall and frequently replay the market crack of October,
1987. They rejoice in its brevity... and exclaim,
"What a wonderful buying opportunity that was!!! See!
I will buy NOW!" |
|
Things are different today: The
United States of America is going into an era of socialism, extended
welfare, and is suffering from a disrupted
and perhaps destroyed work ethic. |
|
Markets & Efficient
Capitalism Are Fragile |
|
Over recent
decades few people understood
the fragile and
delicately-intertwined nature of capitalism and America's
efficient, profitable business structure. |
|
Few people appreciated the
delicate supply-demand-price equilibriums inherent in
the US-bred
capitalistic business environment that developed and provided high
standards of living for nearly all who chose to work and earn their
own honest living. |
|
Perhaps as both the USA and
its brand of capitalism continue to melt away more people will
realize and appreciate that fact. It is too late for them to
proper. Likely only those
wise enough to have comprehended this fact and appreciate
capitalism and the USA have the wisdom to endure, recover, and
prosper. |
|
There are several macro
reasons why it is different this time in America.
The importance of several of
these elements is magnified in the confluence of
America's shifting quicksand. The following is a partial list. |
|
-- Socialism is being
aggressively implemented; |
|
-- Capitalism is being
dismantled; |
|
-- A socialist
messianic figure is in control; |
|
-- A genuine
global financial
meltdown is underway; |
|
-- An entitled,
under-educated, spoiled,
majority makes up the US electorate; |
|
-- Capitalism is
operating from the
strategic and tactical defensive; |
|
--
Powerful forces will use this down trend
as an opportunity to
dismantle and reign in capitalistic energies, risk-reward
balances and opportunities, and inventive
entrepreneurialism. |
|
Only bureaucratic
entrepreneurialism will be tolerated. That is,
only simple-minded service
industries will be government-promoted by tax breaks, aid,
and public policy acceptability
standards. This is because
bureaucratic entrepreneurs are BO supporters. |
|
History & Future |
|
Nearly all
stock, commodity, and real estate markets are experiencing an
unending flight of capital.
This was the dilemma of 1929. The market highs of 1929 were not seen
again until 1954. Over the following years there was an up-market involving
specific stocks, the
Nifty-50, that were responsible for much
excitement -- until it petered out. |
|
Then there was a
long rally in the later
1960s that lasted
until it petered out around 1970. That faded into the bear market of
the mid and later 1970s, capped by the Jimmy Carter era. |
|
Then -- not long
in investment time frames, but long in human life terms -- in August,
1982, the Ronald
Reagan Bull Market was born. |
|
The Reagan
Bull died in early 2008. It died when BO was perceived as
potentially winning the US presidency. Until,
and only if leadership
and positive investment circumstances come into confluence again,
there will not be another bull market in financial assets. All
asset values will remain depressed and -- at best -- coasting flat during the BO reign of socialism. |
|
No healthy
capitalism supporting healthy markets can develop until
this socialist has been vanquished. |
|
There will come a day when people long for recent
years reminiscing about the good old days. Situations will get
worse. Today contains no bottoms. |