spinach
July 22nd, 2009, 6:35 pm
The "Economic Slow Poison" Theory
I have recently been watching the stock markets closely, and have noticed patterns that sometimes run counter to what one would expect. For example, companies posting fairly crappy quarterly reports and
then the markets take off positive, as though that report was some astounding great news. Then at other times, for no reason that can be discerned, some stocks would advance rapidly, or descend rapidly,
often in sync with other stocks of that same type.
I think I have figured this mess out. I figure that the traders and investors form a "bell curve" of competence:
Some are very competent, perhaps brilliant.
Some are average, and stay afloat because their good trades outnumber their bad trades
Some struggle, because they trade up and down, and really go nowhere
Some only survive by sheer luck, because they are idiots.
In good times, those in the center and at the top the bell curve are gonna make scads of money. The idiots on the bottom of the curve pretty much "walk into" good trades, because times are good.
Over the past 2-3 years of BIG boom before this downturn- the self-confidence in these less than adept investors and traders has likely gotten a big boost. They have made a mint, and so they attribute that
money to their own skill, rather than to the fact that the boom times pretty much assured anyone who wasn't a total moron of making some money.
Well times have changed. The boom is gone, and the pie is shrinking. Business have to fight for every bit of revenue.
The smart investors and traders only have a slightly more difficult time of making money; their only real problem is guessing what sort of idiocy the government is going to try next.
The guys in the "middle of the bell curve" now have to WORK. They can't rely on the simple law of averages of their trades.
And of course, the guys at the "bottom of the bell curve" in these times are gonna lose their butts. And worse, with unemployment as it is, flopping "whoppers" may not be an open option.
Which leads to the conclusion of the new dynamic- my "economic slow poison theory".
The smart investors make money. They know what they are doing, and it's just another day for them.
The middle group makes money sometimes, but loses other times. As their losses mount-- they get more desperate. The economy is worsening, and every bad trade they make puts them one step closer to out the door. So they have to take risks. Human nature being what it is, they do what humans do when between a rock and a hard place: they take crazy risks.
This plays right into the hand of the smart investors and traders- because they know when these "less adept" traders are screwing up, and take advantage of it.
So the ups and downs have an effect of slowly erasing the number of middle of the road traders, in the downturn. It's like a slow poison that has crept into the trading community
and is wiping out the pools of "less than perfect" investors and traders.
As the times go on, the smarter investors have an even easier time. They KNOW the rest are gonna take huge risks, stupidly, in order to try to save their jobs and their money.
So overall, the money gradually moves into the hands of the competent, and these "middle of the bell curve" traders fall away, as though their numbers were being slowly poisoned-
as they make that one fatal trade or investment that takes them down.
The effect would be visible in the markets. We would see the crazy swings, and odd moves. We would see the strange volumes. We would see moves that defy earnings reports and that defy news.
In effect at some point, the "less than adept" are going to have to face the music, and move on. It's a hard thing for someone who was accustomed to success to suddenly realizing the pool has become only
them [the fish] and the experts [the sharks]. Who knows what this desperation on part of the 'fish' [the less than perfect traders and investors] will have? Wilder swings? Who knows what effect it will
have when suddenly only the expertly competent traders are left?
Will stock market wealth end up in the hands of a tiny few?
Similar to the stock market crash of '29, I would say probably so.
Human nature has not changed.
The "Economic Slow Poison" theory is that the sharks are letting the slow poison of greed+incompetence kill off the inept, and the stupid.
And of course, human nature will assist them, as the inept refuse to accept that they really are inept.
I have recently been watching the stock markets closely, and have noticed patterns that sometimes run counter to what one would expect. For example, companies posting fairly crappy quarterly reports and
then the markets take off positive, as though that report was some astounding great news. Then at other times, for no reason that can be discerned, some stocks would advance rapidly, or descend rapidly,
often in sync with other stocks of that same type.
I think I have figured this mess out. I figure that the traders and investors form a "bell curve" of competence:
Some are very competent, perhaps brilliant.
Some are average, and stay afloat because their good trades outnumber their bad trades
Some struggle, because they trade up and down, and really go nowhere
Some only survive by sheer luck, because they are idiots.
In good times, those in the center and at the top the bell curve are gonna make scads of money. The idiots on the bottom of the curve pretty much "walk into" good trades, because times are good.
Over the past 2-3 years of BIG boom before this downturn- the self-confidence in these less than adept investors and traders has likely gotten a big boost. They have made a mint, and so they attribute that
money to their own skill, rather than to the fact that the boom times pretty much assured anyone who wasn't a total moron of making some money.
Well times have changed. The boom is gone, and the pie is shrinking. Business have to fight for every bit of revenue.
The smart investors and traders only have a slightly more difficult time of making money; their only real problem is guessing what sort of idiocy the government is going to try next.
The guys in the "middle of the bell curve" now have to WORK. They can't rely on the simple law of averages of their trades.
And of course, the guys at the "bottom of the bell curve" in these times are gonna lose their butts. And worse, with unemployment as it is, flopping "whoppers" may not be an open option.
Which leads to the conclusion of the new dynamic- my "economic slow poison theory".
The smart investors make money. They know what they are doing, and it's just another day for them.
The middle group makes money sometimes, but loses other times. As their losses mount-- they get more desperate. The economy is worsening, and every bad trade they make puts them one step closer to out the door. So they have to take risks. Human nature being what it is, they do what humans do when between a rock and a hard place: they take crazy risks.
This plays right into the hand of the smart investors and traders- because they know when these "less adept" traders are screwing up, and take advantage of it.
So the ups and downs have an effect of slowly erasing the number of middle of the road traders, in the downturn. It's like a slow poison that has crept into the trading community
and is wiping out the pools of "less than perfect" investors and traders.
As the times go on, the smarter investors have an even easier time. They KNOW the rest are gonna take huge risks, stupidly, in order to try to save their jobs and their money.
So overall, the money gradually moves into the hands of the competent, and these "middle of the bell curve" traders fall away, as though their numbers were being slowly poisoned-
as they make that one fatal trade or investment that takes them down.
The effect would be visible in the markets. We would see the crazy swings, and odd moves. We would see the strange volumes. We would see moves that defy earnings reports and that defy news.
In effect at some point, the "less than adept" are going to have to face the music, and move on. It's a hard thing for someone who was accustomed to success to suddenly realizing the pool has become only
them [the fish] and the experts [the sharks]. Who knows what this desperation on part of the 'fish' [the less than perfect traders and investors] will have? Wilder swings? Who knows what effect it will
have when suddenly only the expertly competent traders are left?
Will stock market wealth end up in the hands of a tiny few?
Similar to the stock market crash of '29, I would say probably so.
Human nature has not changed.
The "Economic Slow Poison" theory is that the sharks are letting the slow poison of greed+incompetence kill off the inept, and the stupid.
And of course, human nature will assist them, as the inept refuse to accept that they really are inept.