Wednesday, October 01, 2008

The Line between Objectivity and Emotionalism

On the Myers Briggs test, I am an ENTP. I'm a mild extrovert, highly intuitive, peg the score on the thinking end of it, and I'm mildly erratic on the perceiving v. judging. I NEVER make decisions on how I feel. I guess I'm just a cold fish.

In business life, among the hardships--and I mean life or death--in corporate life--I was not emotional. I always felt clear eyed about what needed to happen. I never doubted my decisions, and I was confident that the end would be satisfactory (not meaning to sound boastful but earnest in my duty). But there were times when that confidence was overcome in my private moments where I felt an abject terror of the consequences of my being wrong. I didn't have those conversations with anyone. Not even my husband. But in this blog format, I can cheerfully tell you my abject terrors!

The singularly most important lesson that I've learned over the last year is the extraordinary lag between when facts are available to the market v. when the market chooses to act (only today did HIG spook the insurers--I wrote about them in April of 2007). I've reasonably side-stepped the downdraft. That's only one half of investing success--and only 1/2 of the hurdle. The second half is stepping in during the hopeless period and bellying up to the bar (I guess you could say "bellying up to the bear"). With respect to market matters, I do not have such confidence as others are able to muster and roll up and jump in with a "damn the torpedoes" type of swagger.

Now, what if my reluctance to wade into this market is not emotion but reason? And what if the 'reason' of others, based on past markets and patterns, is merely emotion? An inversion of the two so to speak. Here's the thing that I have trouble with..... We've had a credit bubble of such magnitude that has built for so many years, how can the global economy possibly rebound without the engine of funding (credit)? How can any bounce be sustained in any meaningful way?

While the credit markets have blown up, we've still some body and psychological blows that have not been dealt, not been felt. We've yet to see evolving unemployment numbers and declining consumer spending over successive (not just 2 or 3) quarters. How many times can WMT be recommended? At what point in time does the consumer just buy groceries and not the higher margin items? How can we have the despair needed to form a real bottom until we see these things?

I'm an ignorant nobody with no fear of being wrong! I will gladly say that if this is the type of bottom that is formed, and I'm too fearful or ignorant to see it, then I'm just a cloven hoof in the crowd. Maybe I'll be referring to this post in the future as an example of where I was wrong in remaining cautious--a common mistake among the average investor. But I cannot see, nor has anyone pointed to, where the liquidity bellows are going to be pumping in a way that is efficacious in providing additional liquidity.

We may be keeping the balloon from deflating, but we are not making it bigger. It's got to get bigger to have growth, unless I have some fundamental misunderstanding of the way things work. We're merely trying to prevent collapse, nothing more. Worse, there is a hole in that balloon: the consumer. How is the consumer to fare with reduced lines of credit, loss of jobs, frozen wages?

Perhaps Larry Kudlow with his prickish smugness has an answer. He's a monologue. (You can insert names of others). Never changes his point of view though circumstances change. Free market and capitalism! Yeah, right. Free market and capitalism gone wild put us in this pickle jar. And the pickle jar isn't Claussen. No this pickle jar is a special one where a mad scientist consigns Nature's aberrations in the horror movies. This pickle jar will be one that every eccentric economist will have on their shelf. Students will look sideways at it for fear of looking at it head on would bring about palsey. That felt better.....

And what we did for the financial institutions--which is to give them enough money to not go under---we will be doing for the consumer. The consumer too will have to de-leverage. The consumer is the smallest unit. Like the financial institutions, the bellows (two-man bellows with Ben and Hank) are fixing over-leverage with the consumer. We will not be creating new funds for goods and services--we'll be creating funds for the consumer to de-leverage. If the financial institutions get this money and then fail to help the consumer, then I believe the worst. Do not forget that the consumer is 70% or so of GDP. Based on what you see, how do you see a reinvigoration of the world economy?

Should the bill pass this evening, we may get a temporary reprieve through a relief rally, but I see a steady drone of bad news coming. But maybe that is emotion and not reason. And I will own my being wrong. And, I'll be jubilant to be wrong. Ebullient, ecstatic and crazy happy in my wrongness. I may change the T to a S (thinking v. sensing) on my M-B score. I truly will be transformed into a different person.

I'd like to reprise with my friend Selden's quote--he's dead of course, and I don't know him, but his lovely little book has been my compass, and I feel close to him:

Historical parallels are likely to be misleading. Every situation is new, though usually composed of familiar elements. Each element must be weighed by itself and the probable result of the combination estimated. In most cases the problem is by no means impossible, but the student must learn to look into the future and to consider the present only as a guide to the future. Extreme prices will come at the time when the news is most emphatic and most widely disseminated. When that point is passed the question must always be, "What next?". (p. 54)

What next indeed. I'm fearful of the answer to that question in weighing the elements and looking to the future, and I do not believe that we've seen the most emphatic news and most extreme prices. Why? Everyday the story gets worse. Another unanticipated stalwart has fallen. Bottoms are not violent--he counsels, too. They are dull. This is violent. Reason? Emotion? I would trust you to tell me.

13 comments:

nice said...

Leisa

Thanks for your market outlook

I have been leaning also to the side of deflation based on:

(a) An unwinding of assets
due to deleveraging

(b) The very weak action in the Baltic Dry index.

We are probably in the heat of (a) now - but I think it will slow over the remainder of the year

As for (b)

I was surprised by Bill Cara's call for a Bull market lead by Materials - he may prove right if the Central Banks decide to reflate - but his timing has been horrendous - Material stocks have dropped 20-30% since his call.

China has not been a buyer of commodities at all.

And of course D Coxe looks really bad here - its so surprising to hear all these so called experts advising people to buy things like AGU POT as they were just beginning their crash - they've fallen 40% since their recent recommendations.

I find the whole thing odd - I mean before these serious problems Oil was $85 in March - the economy is worse off now - no reason for Oil or the associated materials to be above where they were in March.

It's is amazing how indiviaul bloggers such as yourself and others have been right on top of things having given better investment advice then all the other talking heads....

Anyways - many markets are hitting interesting points here - if we don't hold over the next weeks - probably another 10% downside (esp for commodity related markets like Brazil and Canada)

Were supposed to be at a trading cycle upturn here - but we seem to be being overpowered so far by all this liquidation - esp. with all those commodity bulls caught wrong sided and down so much money haven boughten the dip the last few months.

nice

Leisa said...

I don't understand Bill's call, and part of my impetus for my post was to recognize that it might be my emotionalism.

So far my gut has been correct. I don't think we've seen capitulation just yet. Gary K has been perennially correct in his observations.

Thank you for your nice comment. And...you posting your own insightful observations.

nice said...

Leisa

Re: Bill's call

Actually I just got a hold of his book...

Bill seems to mostly invest using an oversold/overbought paradigm - with his RSI system..

So he tends to buy when the RSI's all line up on different time frames - works most of the time - --> except during a crash - which tends to happens when the RSI's are already over sold

And as we know from 2006 - he tends to sell early when the RSI's gets overbought - but if the market starts trending (like it did from Fall 2006 to summer 2007) then you miss most of the gains...
and end up looking like those 'the sky is falling types'

...

The Trader talk is that everyone is shorting every upmove (in non financials) and also moving in and out of trades in Treasuries as the fear fades and reemerges... also there is talk that the bankers want to send a message that the markets are in trouble to Congress...

To me IMO - the trading game regarding the vote has already played out - we ranup 1000 points when the Bailout was leaked - then we dropped 800 points when it looked like there was no bailout...

I guess if one wanted to speculate again - one could buy into the weakness today or (tomorrow after the jobs report)

... that's it for me today...

nice

sysin3 said...

ENTJ - interesting. To me, that fits you nicely. Especially the T ;-)

I score as an INTJ, which fits me well, especially:

"INTJs apply (often ruthlessly) the criterion "Does it work?" to everything from their own research efforts to the prevailing social norms. This in turn produces an unusual independence of mind, freeing the INTJ from the constraints of authority, convention, or sentiment for its own sake."

and

"Perhaps the most fundamental problem, however, is that INTJs really want people to make sense. :-) "

lol, best wishes Leisa

Leisa said...

Sysin--Well...I'm really an ENTP--but P's are very frustrating to J's (I have to invoke the J for job stuff, though).

I've always been the numbers person, but on any Executive team, I'm the most conceptual person--which is a very odd dynamic for most of my colleagues.

sysin3 said...

ah, P vs. J

I score like 11 on J, but still think that fits.

Right out of college (long time ago), I went to work for a big company which used intelligence and psychological tests in their hiring decisions.

Learned later that they were looking for "dominance" and "intelligence".

Which -seems- to be a conflicting mix .... but ... it worked so very well.

Even we lowly peons could sit in a meeting with VPs and say "well, that's not going to work".

And those (intelligent) VPs would say "hey, you're right".

Very different, but it was a very wonderful environment.

Leisa said...

Sysin--I clicked on your name. Your pics are beautiful. You should post more of them!

Your story is a similar one to mine. When I left KPMG I went to work for an insane man. He had everyone take one of those tests. I was insulted. Anyway, I took the test and they never had anyone score so well.

They hired me. When my colleagues at KPMG found out where I was going they were kind enough to try to dissuade me. My boss to be was a client---and I was told that he was insane. He was. But he was no match for me! (He was psychologically very abusive.) I refused to let him have that power over me. Nice to have boundaries. Sounds like you gave your guys their due as well!

Leisa said...

NG--Yes, Bill has a very disciplined system. I agree that massive de-leveraging v. normal business cycle, stock rhythm can obliterate 'normal' technical buy/sell signals.

It's pretty scare out there.

ninelinebind said...

Leisa, Thank you for the compliment today at the revs.I spent considerable time after market close reading darn near your two years entries on your personal blog. My dear friend calls me a "stamp collector" as I tend to remember a snippet from past dialoque with someone and let it shape future relations until I paste another in the book. I seem to recall conversing quite harshly a good while back regarding cramer. From my readings today it seems we are more closely alligned today in our opinions of him and his value? Two other uncanny things tturned up as well.I took the test and am also an ENTP, and your husband and I share the same birthday. I just turned a gut wrenching 50. Married 30 years with 2 children, girl and boy, both in college. I live in a rural part of north San Diego with frequent travel to Texas hill country @ Austin. A mea culpa to you. I am quick to judge, and quicker to change. I sincerely hope you accept and hope to benefit, as well as you from future correspondence. Regards, Ninelinebind

sysin3 said...

hmm, sounds like you ran into a real A-hole. aka "bully". I just whack 'em, lol. Not good for advancement, but ... nobody owns me.

The company I went to work for was very unique, however. Anybody could and would object to any idea from any other person.

The really unique part was that nobody cared if anybody objected. They (we) were totally interested in what was best for the company, short-term and long-term. If anybody had information which should be considered, they spoke up. And everybody else considered it.

I have never seen that in any other environment. And I feel very privileged to have experienced it.

(the remnants of the company still exist, but we have been absorbed by sycophantic idiots. Pity)

sysin3 said...

I'm glad you like the pics. They're the only decent digital ones I had to put up there.

The better ones are film (which I still prefer). Maybe someday they will get scanned.

Leisa said...

NineL: Your post is very kind, and you've raised contrition to an art form! Thank you for taking time to both visit and write.

An on line environment is not conducive to effective communication. And one never likes to come off as something so different than how they perceive themselves. I'm a wind bag to be sure, and as Noteboom states this evening, I'm the bitchiest woman on Rev's blog.

But in general I try to be well-behaved but I have a real sense of justice (perhaps self-righteousness, which is never pretty) and tend to defend that rather robustly when I feel its been threatened. I'll apologize for my own contributions to the brawl! (But, I'm quite sure the readership enjoyed it! We should do a a WWWF blog smackdown tour!)

Sometimes folks focus so much on the difference, they don't bother to find the similarities. Myself included! Thank you again for your nice message.

ninelineblind said...

Leisa, I will make a concerted effort to focus on the areas of sympatico while not ignoring but being more tolerant of our differences. Anything less would be disapointing and alas provide no entertainment for the blog. This is a real relief.Thanks. Regards, Ninelinebind