“Who should I blame next for the results of my actions?” – The Devil

JR: wow- some investments that were $3 the other day (earlier this week) and then yesterday ranged from $7 to $11… are $35 right now. BUT, I sold them yesterday at $10. Oh well, I take a conservative gain sometimes and miss an even bigger one.

SB: Holy smokes! And of course you are so zen about it. I guess you are the perfect person to be playing the market.


  • Trading (at least short-term trading) is a rather simple activity in terms of emotions. There is curiosity, excitement, fear, disappointment, and gratitude. All of those will come up. Short-term traders are speculating and they know it.

    It is the people who do not know that they are speculating that end up blaming a US President for their foreclosure (or glorifying a President for their 401k gains). Those folks are gambling and seem not to know it, so they do very little research and are very shocked when they suddenly learn that their $200,000 investment of borrowed money is an extremely high-risk speculation. Naturally, realtors and mortgage brokers tend not to emphasize the immense risk of foreclosure and bankruptcy that goes with gambling hundreds of thousands of dollars of borrowed money.

    Official photographic portrait of US President...

    Official photographic portrait of US President Barack Obama (born 4 August 1961; assumed office 20 January 2009) (Photo credit: Wikipedia)

  • So, unlike with credit cards where people understand that they are promising to pay back the borrowed money, real estate speculators tend to presume that the real estate itself will cover the debt (which is quite ridiculous really- like think about buying a car on borrowed money and then expecting the car NOT to depreciate- how crazy is that- of course assets tend to depreciate as new construction methods make old buildings… seem just plain “old-fashioned” – and of course there will be significant upkeep expenses, especially on real estate!).
  • But besides all of those facts which even a person investing cash in real estate will recognize, keep in mind that a $200,000 mortgage will typically cost more than $300,000 to pay back. Unless there is a huge appreciation in the resale value of the real estate (which most speculators simply assume will happen across 15 or 20 years), borrowing may be much more expensive than renting, like in the case of people who bought real estate in Japan in 1989 at the peak of the boom. 24 years later, the real estate market is still way down. Most excited speculators simply do not research the reality of markets because they are so excited (greedy?).
  • Consider that if you had $200,000 cash, you might be quite skeptical to spend it all on real estate (rather than diversify across a few investments). However, if you did not have hardly any cash, but could get a $200,000 loan, you might be much less skeptical about spending $200,00 of borrowed money. However, that is the “logic” of a hysterical mania. People “should” be more conservative with borrowed money. In fact, during speculative manias, people tend to be so excited that they think of gambling with borrowed money as safer than their own money. Why? Because if someone will lend them so much money to purchase real estate, people presume that indicates that real estate is safer than stocks or lottery tickets or whatever. However, look at Japan’s last few decades! (picture shown includes 1989-2011)
  • japan nikkei stock index
  • So, if I lend you money to invest in stocks or lottery tickets or real estate, that does nothing to change the inherit risk of those markets. However, if huge groups of people all lend money to people to invest in a particular market (like real estate), that tends to dramatically inflate prices in that market, making it extremely expensive for renters and so on. In 2003, when I started writing about the coming real estate collapse (which began in the US a few years later, but is far from over), I was already clear about basic principles like I have just mentioned here. Further, even though there has been a dramatic decline (over 50% in real estate prices here in most of Arizona), most people are still quite illiterate when it comes to the risk involved in speculating on a market like real estate which is inflated by huge amounts of lending and can quickly and sharply deflate, just like happened in Japan in the 90s and last decade, or in the US in the 1930s.
  • As another analogy, does it change the long-term resale value of car to buy it in cash or buy it on borrowed money? Not at all, right? However, many people act more confident simply because they are speculating with borrowed money rather than cash when it comes to real estate. In fact, they are typically acting only on excitement, not as disciplined speculators. So, when their high-risk choices are exposed as high-risk choices, they tend to react with denial and blame and so on. That is kind of like eating a horrible diet and then complaining that diabetes and infertility and so on are arising.
  • Does it change the biochemical results if the food is provided for free, bought with cash, or bought with borrowed money that still needs to be repaid? Not at all, right?

    If people want good health, it can be important to research the results of various diets. Those who blindly rely on the FDA get the natural results of their blind reliance.

    English: Logo of the .

    English: Logo of the . (Photo credit: Wikipedia)

    If people want wealth and security, it can be important to research the actual results of various investment strategies. Most people do not really have any strategy at all. They are just following the herd.

    When everyone else does well, so will the herd followers. When everyone else is facing bankruptcy, so will the herd followers. When everyone else is complaining about how Obama is to blame for high gas prices, so will they.

    However, high gas prices in the US tend to correspond to high prices elsewhere (Europe, Japan, etc). Also, gasoline prices may $4 in California while they are $3 in South Carolina. Is Obama also to blame for that?

    Now, to continue the analogy, let’s say that people want a politician to change things to lower gas prices and raise housing prices (like because they are already $50,000 upside down in a home that they cannot afford to sell). They are in an extreme of desperation.

  • To me, that is kind of like eating a crappy diet, getting sick, and then wanting to keep eating the same diet and having the President change biochemistry so that the same diet will produce different results. That is deluded, hysterical, and… very common in regard to how people think about investments.
  • Their strategy is follow the herd blindly, then complain about a politician when things do not go well for them. That is the same strategy as blindly following the advice of doctors who claim not to understand cancer well enough to cure it. If they do not understand basic physiology and say so openly, then what credibility do they have to give advice? Why exactly should I do the thing that I know will cause all of my hair to fall out? Why shouldn’t I research long-established methods for not only preventing but remedying cancer? Well, one factor is that special interest groups like the FDA have taken extensive measures to censor such information while investing huge amounts of money in to indoctrination programs about how cancer is allegedly incurable.
  • But not all of the information is censored or targeted for prosecution. Anthropological research that clearly shows what cultures (and what diets) produce zero incidence of cancer have been around for at least 80 years. But many modern people operate in a state of ongoing low-level panic. When a holy doctor from the royal priesthood of the FDA says that cancer is incurable, people just accept that without question typically. They think that something is a scientific fact just because the FDA said so!

  • (John Hopkins University recently admitted that it had been wrong for the last few decades about something, and many people seem to believe that because they admitted being wrong, now they suddenly have more credibility when they publish something. Well, consider that they never did have much credibility and still do not! Results establish credibility. If you want a cancer cure, go to where there is either no incidence of cancer among large groups of people and copy their behaviors or else go to where there are long lists of people who have had totally recoveries from cancer and copy their behaviors. That is only logical. Or, keep paying attention to what the jokers at John Hopkins University are saying today that they will be retracting in a decade.)
    So, when a diagnosis of cancer is made, most people just react with terror. They do not think “why should I accept what this person who claims ignorance about how to cure cancer is saying?” (Actually,  recently more and more people do think with a healthy skepticism about the religious fanaticism of the superstitious worshipers of “incurability.”)

    Notice that most people do not think “why are cancer rates rocketing across recent decades?” They do not look for books from the 1930s on why cancer was so rare for most of human history, right? Further, if people came knocking on their front and offered them such books for free, would they even read them in that case? Many might not. Many may not think of personal responsibility as a priority.

  • Likewise, when economies shift, do masses of people chase down those who explicitly predicted the shifts? No, they keep tuning in to the same mass media outlets who failed to give advance warning. Why? Maybe these mass media outlets (programming) which are by now established to have no credibility or competence will suddenly have competence and credibility.

  • Again, it is a low-level panic that then resolves in to terror and desperation with herds of people clinging to the familiar. That is why the opportunity for the few who are alert is immense. The masses are still relying on TV shows for instructions on investing, relying on Obama to secure your retirement through social security, and so on.

Panic attack

Panic attack (Photo credit: Wikipedia)


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