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.
