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Victor Niederhoffer



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They Held Tightly to the Things They Knew Best

*See below -- Letter from the President of the Old Speculators' Club Defending Old Ways

Never at a loss for a reason to be bearish, the chronics are clinging to their old ways and coming up with one reason after another to be bearish. The main themes these days appear to be that the yield curve is close to inverting, the pension fund liabilities are becoming increasingly ruinous, the earnings growth is going to be much worse next year, the bull market has gone on longer than its norm, (or the bear market is confirmed by the absence of a break through of the 2000 high), and consumer debt is going to cause a recession. As the Sage says, "We do not think the general ownership of equities is going to be very exciting over the next 10 to 15 years."

Now the usual model to analyze those in denial of a failed prophecy is the Keech cult studied by Leon Festinger. Like the chronics, they predicted the end of the world. And when it didn't come, that only confirmed their belief that they were right. Festinger reported five conditions necessary for such a confirmation:

  1. A deep belief was held
  2. Irreversible action must be taken
  3. Events discredited the belief
  4. The evidence is recognized.
  5. Group support is present after the disconfirmation.

Okay, now the bears:

  1. The chronics deeply believed that Dow 5000 was around the corner
  2. They sold short, bought funds of funds, or stayed in money markets irreversibly staying away from the 10% a year drift.
  3. Events like the market going up some 50% in three years, with the average unweighted stock doing much better than that, have discredited the belief.
  4. This has been recognized by the chronics.
  5. The groups of bears, readers of the weekly financial columnist are still out there, admiring his quips, his sardonic smarmy condescending attitude to those who have made money and have been lulled into a sense of unjustified euphoria et al.

Yes, but there's a better analysis of it, a better reflection of it all. And as usual it's by a woman of deep insight, one of the greatest observers of human nature in our day, Margaret Mitchell in Gone With the Wind, a book well worth reading as one of the greatest historical novels ever written, rivaling some of the best by Patrick O' Brian.

Something had gone out of them, out of their world. Five years ago, a feeling of security had wrapped them all around so gently they were not even aware of it. In its shelter (Nasdaq 1000) they had flowered. Now it was gone and with it had gone the old thrill, the old sense of something delightful and exciting just around the corner (Dow 5000), the old glamour of their way of living... Their faces were little changed and their manners not at all but it seemed to Scarlett that these two things were all that remained of her old friends. An ageless dignity, a timeless gallantry still clung about them and would cling until they died but they would carry undying bitterness to their graves, a bitterness too deep for words. They were crushed and helpless, citizens of conquered provinces. Everything in their old world had changed but the old forms. The old usages went on, must go on, for the forms were all that were left to them (the prices are not sticking to the moving averages). They were holding tightly to the things they knew best and loved best in the old days, the leisured manners, the courtesy... the traditions in which they had been reared. They had nursed the wounded, closed dying eyes, suffered war and fire and devastation, known terror and flight, and starvation.

Now if that doesn't express it perfectly, I'll eat crow.

Pamela Humbert responds:

I think it's the aging of the baby boomers (I blame all bad things on them). They are suffering from the realization that:

While there is no way of testing my theory, it doesn't seem implausible that the bearish meme in the face of otherwise good things is about so many people facing menopause, middle age crises, ennui, and fear of death all at the same time. In my opinion Bill Cl#nton's heart condition had a bigger impact on peoples' outlook than 9/11.

P.S. I'd like to avoid an influx of emails from 55+ year olds telling me that their s#x life is better than it was when they were 30. And for seniors who feel obliged to share the details of their amazing s#x lives -- don't. It may be great now but the reality is that you'd pay $1 million, if not more, to be 30 again. Viagra does only so much for the experience.

A Letter from the President of the Old Speculators' Club Defending the Old Ways

Wrong, wrong, wrong.

First, you dabble in fiction: "S#x not as good when you're 55+..." There is no s#x after 55.

Death is further away, not closer. See Ray Kurzweil's The Singularity is Near. Of course, life is not a straight line up. There are too many delightful back alley diversions to even want to adhere to a straight line.

And you know what's left after the kids are out of college?

Nothing! We're absolutely flat, stone broke, in debt, and with ever diminishing prospects. Whatever cash assets we had went up the chimney when we clung to the promises of the chronic bulls and held onto our tech shares after the turn of the new millennium. And now that Kurzweil tells us immortality is on the horizon, we learn we'll have to work forever. Of course, if we had put our money back into the market we would have regained chunks of what was lost. But we are a generation that despises risk. We embrace security and a market that always trends up and a guaranteed comfortable retirement.

Victor wishes us to cast our few remaining shekels into a market that could once again turn into a bonfire. Some of us have done so, but only because we always watch CNBC, "where never is heard a discouraging word." I would love to read the thoughts of the weekend permabear, but I can't afford it. Most of my free cash goes toward purchasing necessities -- thank G-d for low inflation. I used to think I was spending substantially more for food than the government was stipulating. However, once I recalculated my expenditures properly, I learned I had created a straw man. By merely placing meat, fruits, and vegetables in a "highly volatile" category, I discovered my core expenditures were, indeed, almost unchanged. I just don't have much cash - nor do most of my peers -- and that's why we're cranky.

Why the Chair rants about the chronic bear, the Palindrome, the Sage and others I'll never figure out. Just who does he think is constructing that "wall of worry" that must be climbed? You certainly won't find many contributing builders on Daily Speculations - although they might be quite able to construct a temple to Pangloss. Another item I pass over at the grocery store, which the Chair never foregoes, is the Enquirer. You ask, Why? Well, other than the unnecessary expense, the Enquirer is permanently bearish on people! Admittedly, the celebrities and other worthies who fill its pages may not be the world's finest human beings; but isn't it just a touch vindictive to watch them suffer - and suffer again and again week after week. Appears old-hearted to me.

So forget about laying the blame off on menopause or ennui. We can tolerate things like that as long as we have a gated community, a good tee-off time, no slovenly neighbors, a convenient Nordstrom's, and good Chinese carryout. But the government won't give that to us. So the market offers our only opportunity. But, forgive us, we're scared to death especially with the resurrection of Goldilocks and "don't worry, be happy."

We've been down that road and were lucky to get out with loose change. You see, unlike Mitchell's fictional characters, we never possessed fine manners or experienced a flowering. We went straight to seed in the late 60s and early 70s when 420 was cheap, s#x was free, and the only thing exciting around the corner was the draft board office, which we torched regularly. We spit on our wounded, cheered their deaths, and were indifferent to the fire and devastation that the victors visited on our former allies. Gimme Shelter was more than another Stones triumph; musically and cinematically it became our blueprint for life. And we feel betrayed.

James Sogi avers:

One of the sad problems is the lack of respect for age, the elderly and their wisdom. There is a pernicious cult of youth. The Hawaiians revere and respect their kupuna (elders) for their wisdom and knowledge (mana'o). Slavish worship of beauty and wealth and their mimicry is a parody that causes dissonance. It is an misguided offshoot of commercialism.

The are many benefits that come with age and wisdom.... independence, a level of comfort, freedom from many youthful anxieties and self destructive urges. Health can and should be pursued at any age as the top priority.

Part of the answer is to keep moving and active. Check out Surf for Life, it's a movie about old surfers 93, 84, 70 still surfing, still stoked on life. Health: it's worth a million bucks.

J. T. Holley rebels:

Well not exactly my friend. Great book and somewhat good metaphor, but please may I beg of you not to have the Ableprechtuffets compared to my beloved South. Much of the Civil War history is untrue. Like most history it is written by the victor. The Bulls continue to write the economic history of our land and this is based on empirical fact, but the South didn't send its men to War over an issue that affected only 6% of the population, such absurdity is readily made available in text. The deception is there. There was no Union Army fighting for the sake of ending slavery nor was there a Southern Rebel Force fighting to preserve it. After the South declared its independence the Union forcefully invaded, leaving the South no choice but to defend themselves. The South obviously surrendered and gave way to Progress and Industrialization.

Some would say that the South has become an economic colony of the North used and exploited like Colonies around the World. That might be a little metaphoric to the Bull vs. Bear struggle but it ain't similar at all in the characters and integrities of whom make up the fight? The only similarity is that progress and change are shared in the story and plotline for the sake of economic advancement. The South like the Bears just don't like change! The South at least eventually embraced and is continuing to change, albeit slowly. Chivalry, dignity, respect, individual liberties, and gallantry are what Mrs. Mitchell wrote were Scarlett's feelings and reflections.

Now Vic, not one of those characters in the Bear Camp possess any of those traits? They have had their brains good and scrubbed to seek total destruction and eventual devastation so that they can say "I told you so", do you think General Lee would have even thought such? Sure Buffets words sound sympathetic, certainly not empathetic, but would you think for one minute he would nurse the wounded or close dying eyes?

Kim Zussman adds:

Perhaps in addition to boomer aging, we should consider how much trading is now controlled by 30ish physicists and engineers at quant funds with horizons similar to particles from colliders.

It's hard to understand how, if trading/investing is approximately zero-sum, everyone can be rich. But of course this is neither the message of libertarianism nor statistics. For there to be rich there must be poor. To be rich you need to be smart or lucky, and usually both. The non-random element after the dice are thrown is intelligence, or persistence at learning, and it is available here and now.

Here in sunny Westlake Village, there are plentiful queues at tee-time, chock-a-block McMansions, and too many Timmys toning at tony healthclubs. And it is surprising how many are on anti-depressants in the face of such plenty. Maybe it has less to do with absolute possessions than potentials, and the defining moment of age-related depression is the abandonment of hope for a better future.

Dr. Rod Fitzsimmons Frey offers:

When I was helping to distribute investors' money to the community by hiring programmers, I had a decided bias in favour of university graduates over technical college grads. Not because one was smarter or more ambitious: rather, it seemed the probability of a university grad's understanding of the importance of "why" versus "how" was higher. (The probability was still quite low, I note.)

The preference of "how" over "why" seems to be genetically encoded in us. It's easy to see why: in a Hobbesian world of the quick and the dead, they "hows" are well fed and surrounded by little how-asking bambinos long after the "whys" have been eaten by sabre-tooth tigers.

Like so many traits useful in the jungle, our how-bias is no longer serving us quite so well. Big Macs are so abundant that our jungle-born urge to store them on our midriffs has become injurious. Likewise, prosperity is so abundant that serious attention to the "how" is all that is needed to attain the starter castle and matching Hummer.

But in attainment, as in all other endeavors, success goes to the "why" askers. Those who know why they want material prosperity are likely to harvest no end of good from it. Those who attend only to the how will meet with disappointment and despair. This is not a revolutionary point: it is repeated over and over by all great religions, all lasting philosophies, and all wise uncles at weddings. Yet by-and-large most people miss it. I'm personally inclined to forgive them: "why" is very hard.

I know my own "why" for chasing prosperity. I'm turning to y'all for the "how".

A Ribald Spec adds:

"There is no sex after 55"... miles per hour! Any faster, and you really do need to concentrate on driving.

From an Anonymous Contributor:

Margaret Mitchell would be proud.

For the poetry version, it's time to chase down a copy of Joni Mitchell's "Hissing of Summer Lawns" album [which I consider her best work, ever], which has this fine track in it. Grafting in the trading analogies is a straightforward exercise.

Joni Mitchell, Shades of Scarlett Conquering lyrics:

Out of the fire like Catholic saints
Comes Scarlett and her deep complaint
Mimicking tenderness she sees
In sentimental movies

A celluloid rider comes to town
Cinematic lovers sway
Plantations and sweeping ballroom gowns
Take her breath away

Out in the wind in crinolines
Chasing the ghosts of Gable and Flynn
Through stand-in boys and extra players
Magnolias hopeful in her auburn hair

She comes from a school of southern charm
She likes to have things her way
Any man in the world holding out his arm
Would soon be made to pay

Friends have told her not so proud
Neighbors trying to sleep and yelling not so loud
Lovers in anger Block of Ice
Harder and harder just to be nice

Given in the night to dark dreams
From the dark things she feels
She covers her eyes in the X-rated scenes
Running from the reels

Beauty and madness to be praised
'Cause it is not easy to be brave
To walk around in so much need
To carry the weight of all that greed

Dressed in stolen clothes she stands
Cast iron and frail
With her impossibly gentle hands
And her blood-red fingernails

Out of the fire and still smoldering
She says A woman must have everything
Shades of Scarlett Conquering
She says A woman must have everything

(repeated refrain) A woman must have everything


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