Burning egg on face

26Aug2010 03:49GMT

It is weird how this ‘double-dip’ talk has flourished.

I clearly remember 9 months or so ago reading comments from intelligent people (not just from the tin-hat brigade) that the second half of 2010 was going to bring a slowdown in the US. All explained rationally and clearly, no histrionics. And here we have a slowdown and wow! The flagellation and the gnashing of teeth … how are these supposed intelligent market pundits so surprised?

Not that flagellation and gnashing of teeth is misplaced when you consider the havoc being wreaked on people’s lives, those without work, with debts, perhaps foreclosed houses. None of this is good. At all.

But the most hysterical reaction is not coming from people much concerned with the social dislocation being caused; no, the hysterical reactions are coming from those saying the stock market is going to crash again. It seems to be an ego-driven thing. Most of these guys (they all seem to be men, right?) were calling for the crash in late 2008/early 2009 to continue, for the market to break to new lows. It didn’t. And the egg on faces must be hot, because these guys are stinging. And if they can talk it down, hey – may as well shout it down at the top of their voices. Might be able to save a bit of face.

I should add, in deference to probably the best finance-related blog on the net (I haven’t read all of them so if yours is better, let me know so I can check it out) that a lot of the hysterical comment is politically or ideologically motivated. Check out this post on the blog A Dash of Insight. It really is an outstanding blog, written in a calm manner. You don’t have to agree with everything Jeff Miller writes to learn from his clear and rational words.

Check out this post: Weighing the Week Ahead: The Confusing Effect of Politics

The market scaremongers. There are many highly-publicized predictions of a market crash. There is no accountability. There is no fact-checking or record-checking on the extremists. Some of the warning messages “go viral.” People want to believe the scary fantasy and they want to pass it along. Anyone who understands the scientific method, back-fitting of data, and similar topics will easily dismiss illusions like the “Hindenburg Omen.” Most investors lack these skills. That is bad news for them, but good news for the astute.

The economic scaremongers. There is a wide and obvious disparity in economic expectations. In general — and there are a few notable exceptions — the mainstream economic community sees modest economic growth and little near-term chance of a recession. The “pop economists” blogging on the topic are far more pessimistic. Those who do not do formal forecasts are more pessimistic. Those who have a political agenda are pessimistic. Those who need blog hits (a group that distressingly now includes mainstream media) are pessimistic.

The political scaremongers. There is a natural market for negativity. Those out of power can and should attack, claiming nothing has worked and nothing will work. It is great political theater.

Now, there is a serious side to this, it is not all about a bunch of overconfident but hopelessly wrong commentators losing face. It is also about appropriate policy response.

This weekend the Fed meets at Jackson Hole. QE2 will be on the agenda. I reckon the Fed may very well be forced into QE2 by all the shouting and hysteria to DO SOMETHING! I think the best path is to wait and see a little longer, because I think the US economy is showing signs of growth, and acceleration to come.

Anyways … who cares what I think? What about the markets?

Well, yesterday I said my No.1 model was calling for a sideways move after the selling of the past few days (& my No. 2 model wasn’t saying anything really). This #1 model (and, if I may say so, my interpretation of its signals) is working beautifully. We had a new low (for this run), then a reversal to close higher. The model is not fine-tuned enough to be able to describe this sort of an outcome in advance, ya gotta be there to trade and manage the twists and turns, but the summary I can usefully convey ahead of time is working out really well.

For today (once cash opens) … I haven’t actually looked at it yet, sorry! Update prior to cash open (time permitting).

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One Response to Burning egg on face

  1. frink says:

    The commentary has been quite interesting of late hasn’t it! Amongst all of the double dip talk we’ve had the “technical” crowd doing the same: The “death cross” was supposedly bad, as was the Baltic dry index crashing(just don’t mention the supply side of the equation!), now it’s the hindenburg omen. And despite all of this talk, the SPY hasn’t posted new lows for 7 weeks.

    If the markets do crash from here, there will be a lot of rich people out there as it seems like every man and his dog are short!

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