The love of money is the root of all evil. I do believe that. Of all obsessions, getting obsessed with money can really twist you up and ruin your soul. I’m not quite sure why that is. Psychologists have experimented on chimps to modify their behaviour through operant conditioning, getting them to do certain tasks on the promise of bananas as a reward. They went a step further and trained the chimps to accumulate money tokens that could be traded for bananas. Even chimps became obsessed with money for its own sake.
Not that we are chimps, so let’s end that digression here. Where was I?
I have been a deflationist since 2007, when I first figured out (retrospectively, mind) why the Credit Crunch happened and then I accurately predicted the 2008 financial crisis. What I didn’t do was make any money off it. You see, the only way to profit from a falling market is to go short. And as you soon learn, going short is nothing like going long. When you go long, the whole of the Establishment is on your side: stock exchange rules, herd mentality, tax breaks, central bank interest rate manipulation, government policies. Go short, and the Establishment is against you. You must get your ducks lined up perfectly and correctly guess the window of opportunity. It’s very easy to go bust by going short.
The only safe thing to do in a falling market is to sell out of your positions and hold cash. That isn’t really profiting, but merely protecting the wealth you already had. Profiting comes later, when the market rises [1]
Although I correctly predicted economic changes in these past ten years, I’ve singularly failed to capitalise on them. Although I well understand investing, I’m not actually very good at doing it. I have the wrong temperament. I’m much too risk-averse, and way too wolfish to let myself ride a delusional rabbit market. Those rabbits who do go all-in will make money if they manage to sell back into cash before the crash. Few do, but there are some.
So, I’ve been rather annoyed the past ten years when looking at the stock market. It’s a ridiculously over-priced casino where everyone is playing musical chairs with paper valuations. Price-earnings ratios are pure fantasy, based on fake earnings and wildly over-optimistic multiples; banks are holding interest rates ludicrously low, making debt appear risk-free; company buy-backs are adding unsustainable buyer demand; What a shit show. When will the music stop? Has it stopped now?
“Markets can stay irrational longer than you can stay solvent” John Maynard Keynes [2]
Knowing I was ill-equipped to make money in an irrational market, I stayed the hell out. So I’ve been in cash, watching the indexes tick ever higher. Very frustrating. Then Corona happened and every major index crashes 35-40%. Suddenly, it’s like ten years of missing out never happened.
Have a look at these charts. I’ve drawn a line to highlight which year they crashed back to, at the bottom of the first crash.
So, the big stock market that matters- the USA – has dropped from its February 2020 peak of 29,423 by a massive 37%. The venerable UK index is down 34% since February (almost the peak). The squarehead baby-eating hun index (DAX) is down 39%. Lastly, the bat-eating evil-hearted slant index (Shanghai) never recovered from the 2008 bubble and is now 55% from its heady highs.
Those are big drops. Now look at it historically, in terms of which year it’s taken us back to:
Yanks: July 2016 – when Valerie Jarrett Obama was still president
Brits: August 1997 – only three months after Tony Blair first took office
Huns: May 2013 – last time a German club team reached a European final
Fu Manchus: January 2007 – I think the Boxer Rebellion was still going on.
Those are big snap-backs. I graduated my Masters Degree in August 1997 and started my first job in London a month later. If I’d begun investing my money in UK companies on a buy-and-hold strategy starting then, I’d have not made any money [3] in twenty-three years! If you look further left on the charts you’ll see if most indices drop a little more (which I think they will, this is just the beginning), they’ll time-travel even further back. The chinks and huns aren’t far off 1997 either.
In fact, the only area not badly impacted by the Corona Crash is Africa:
So, what does this all mean? I’ll probably post on it next week.
If you’re needing a daygame fix, you ain’t gonna get it on the streets, are you? Far better to read up on your theory with Daygame Mastery and Daygame Overkill, so that when the crisis passes you are ready to dive into quality skirt.
[1] Anyone banging on about crypto, day-trading, leverage, ETFs etc as a way of making cash in a falling market can fuck right off now, you stupid morons. You win a couple of coin tosses and think you have an unbeatable system.
[2] A closet homo.
[3] Except dividends, of course, among the rare companies that actually pay them. That would be more than offset by buying shares in a rising market, so I actually lose money when they drop compared to staying in cash the whole time.
Krauser PUA 
April 4, 2020 at 3:46 pm
What’s your view on what will happen to house prices in UK, specifically the bigger northern cities ? [I haven’t looked at an ex-London chart in a long time. You really have to exclude London from any analysis except of London itself, because of all the immigration, money laundering and so on. My guess is prices remain flat for at least a decade, continuing to decline in real terms. K.]
April 4, 2020 at 6:38 pm
What the hell is going on with Tesla and Musk? That company looks like a ponzi scheme and Elon is the biggest bullshitter I’ve ever heard, yet everybody gives him a pass. [Musk is a con man, like every other big name in Silicon Valley. Tesla is all about accounting fraud and scamming public subsidies. SV as a whole is a con. Only Facebook and Google make money, and that’s only because they are fronts for CIA and NSA respectively, hence them never getting prosecuted in the US despite repeated flagrant law breaking. K.]
April 4, 2020 at 8:25 pm
K, apologies for hijacking your thread…. do you ever anticipate making your books available on Kindle, ebooks, pdf….. something potable I can read on my tablet. Thanks, Trin [Probably just the memoir. K.]
April 4, 2020 at 10:43 pm
I don’t think the markets have come down enough to make these prices a good bargain. Feeling that you missed the incredible rally naturally makes one look for signs that a repeat is possible. You seem to think a) a huge crash has occurred b) that a rally will subsequently occur.
On a) the market hasn’t fallen as much as you may believe. Using the DOW is not a good proxy as its made up of only 30 (generally unloved) industrial stocks, a index from a bygone time, one large component which is Boeing which has been suffering from its core product being found to be defective. S&P500 would be a better measure to use. On that measure we almost were at 3500 before the fall, which is sky high versus the two previous peaks in 07 and preceding that the ludicrous 99-00 dot com high both at around 1500. So you were at more than double the level of the two preceding crazy stratospheric bubble periods. To get an idea of exponential rise in last couple of years we have gone from about 2000 in 2016 to 3500 at the end of last year. Almost double in the course of 3 years or so. The S&P500 has fallen about 20-25% from that insane high because of recent events. In this context it’s not that far down.
b) you assume the market will recover. One cognitive bias we have is that we think things will always go somewhere. What about the possibility of chopping around wherever it drops to going up and down for years and years like Japan did since the end of their credit driven boom in the 90s? On the Japan point, the busted out financial and economic system of post 90s Japan is what the West is beginning to resemble. We have companies who have taken on huge debt in this cheap credit environment, little growth despite rates being essentially at 0 and central banks who are playing with the monetary system which has essentially destroyed the whole capitalist system. Result is a load of zombie companies. Buying stock on some fundamental basis doesn’t seem wise. For your poster asking about Tesla, this is your poster boy for this whole phenomena.
Now you suggest the downward move has further to go in which case perhaps you will get a bargain if you buy in. I’m not however sure why you believe it will go down further.
On this whole subject generally, the stock market is something of a mirage from my observations. It looks like the easiest way to make money, when in fact it is one of the hardest. If it wasn’t so, why do you not hear of countless stock market millionaires (I don’t mean the snake oil salesmen selling some scam)? Anyone looking at hedge fund managers or traders at banks etc should realise that they are invariably all just making money from various asymmetrically favourable fees and commissions on other peoples money. On the other hand how many millionaires are made in business even a humble business started in their own home? Many. You probably know one of two people in your own extended circle of contacts. The rate of return starting and building a business is I would suggest a far better way to deploy any capital you have in order to make money.
Z
April 6, 2020 at 7:16 am
Seconded. Unscripted by MJ DeMarco is a good book that talks about this.
April 5, 2020 at 6:30 am
Debt expansion will continue and ultimately doesn’t matter 1. so long as the debt is not repudiated, 2. Yields/Interest rates are negative/very low 3. sufficient numbers of normies have confidence in the system (easy to achieve with the fear mongering and the tension release tactics of the Govt controlled mass media).
The only way the current system will collapse, is if Yields go higher, debt is consequently repudiated and sufficient numbers of the population no longer have confidence in the system.
The system as it currently stands suits the elites just fine, they get a World Communism ruled by the large corporations (who buy up and control all the assets with cheap debt where the principal is never paid back) and a populace easily kept in check with fear mongering and tension release tactics.
Like well looked after farm animals, the Normies practically beg for their captivity.
April 5, 2020 at 6:34 am
Should also add the system will also continue as long as the US Dollar remains as the Global reserve currency and it does not get TOO strong relative to other currencies.
April 5, 2020 at 1:13 pm
Wait a week or two. The “normies” as you put it are already getting restless.
And the elites are not that smart.
April 5, 2020 at 2:14 pm
If there are all sorts of obstacles to being short, then maybe long puts? Or long options in general. I think that’s what Taleb suggests in Anti-fragile: deep out of the money options.
April 5, 2020 at 3:27 pm
You are ignoring the tax advantages of owning stocks. Again, the rules of the game are rigged in favor of stock holding.
Let’s give a hypothetical example, income is taxed at 40%, short term capital gains are taxed at 30%, long term capital gains are taxed at 20%.
You can deduct some capital losses against income. Suppose you own a basket of stocks with low correlation to each other. Some go up, some go down. You sell the losers at year end. The losses on the stocks lower your income and you pay less in taxes now. The gains in the stocks are taxed at a lower rate (they are long term capital gains), and you can choose the timing of when you pay the tax. You can lower your tax rate by transferring income to long term capital gains.
Many people who work in finance get paid in capital gains. So there is no limit to the deduction of capital losses. They can more effectively transfer their short term capital gains into long term capital gains by timing of sells.
April 5, 2020 at 9:50 pm
I don’t think you should make financial or business decisions based on tax implications. It’s back to front. Make the decision based on what will give you the highest rate of return. Then pay the relevant tax. If I give you an example, if you invest in a UK film, the government actually GIVES you money in the form of a 25% rebate) Few British movies make any real money so it’s not such a great idea.
If the stock market was a casino where the rules of the game are easily worked out it would be like a fruit machine which paid out unlimited returns. However in a list of the top 20 richest people in the world only one, warren buffet, has generated their wealth from finance.
Ps if anyone wants to fund a movie about a PUA hero’s journey let me know and I’ll get my camcorder out. I’m thinking that Tom Torero would make a fantastic protagonist who battles his demons to emerge victorious driving his camper van off into the sunset) It’s going to be a hit.
April 6, 2020 at 12:15 am
And this is why I’m going to be sticking to investing in GICs and government bonds where I don’t risk losing my savings when something disastrous happens in the future. [I’ll probably post some thoughts on investment ideas. I haven’t ignored any of the things I’m being told I’ve ignored. K.]