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Sunday, September 27, 2009

The Conventional Wisdom

Another Sunday rant to followup somewhat to my earlier rant. This one deals with the prevailing "conventional wisdom". First let me see if I can wrap my brain around the current general media conventional wisdom talking points:

1. The world's massive stimulus efforts are succeeding and "liquidity" is flooding the markets inducing a great rally in equities (risk-taking).

2. "Removing" the stimulus too early may bring about a double dip recession. Keeping it in place too long may bring about rampant inflation and produce more speculative "bubbles". Therefore the Fed must walk a fine line "balancing act" to bring about the best results. As an extension, the general mantra is that the FED largely controls the fate of things.

3. According to almost every economist (to a person) the recession is likely over but the recovery will be tepid and weak. A jobless recovery so-to-speak. (oxymoron if you ask me)

4. The Fed's historic monetary stimulus efforts "saved" us from going over the "brink" of a great depression. (hubris?) Without these efforts, we would be far far worse off.

5. The Lehman bankruptcy caused the financial turmoil in the markets in 2008 and the great decline. The FED "allowed" Lehman to collapse. This was perhaps a "mistake".

Ok, where to begin? Let me begin by first stating that many traders like to pride themselves on not accepting conventional wisdom. After all, conventional wisdom represents the herd. And betting with the herd will work for a while but eventually a cliff will be reached. Think lemmings.

I will say that governments tried desperately for 17 months at stimulus measures. Look up the numbers. The FED and treasury had already spent trillions even before the December to March final wave down occurred. Fear ran rampant despite the Fed's efforts.

The number one media mantra of "walking a fine line" between removing and keeping stimulus in place will result in success or failure type thinking. This is all hogwash is all I can tell you. If you buy what the media is spewing out on this you might as well listen to "analyst" upgrades on stocks and trade off of that.

Let me interject a bit of logic in this equation; the underlying reason the general media spews forth the "walking a fine line argument between stimulus and not stimulus" is the underlying conventional wisdom that the Fed does indeed control the fate of the economy.

So taking that next step further, if you believe the FED controls it all, then you must believe in the general media mantra of the "fine line" argument! You cannot separate the two with logic!
Therefore you accept the general media's number one conventional wisdom!

And you now agree with Jim Cramer, financial guru of the masses. You are trading on Cramer-logic!

Ok about the economists: They never have been correct about anything. If ever there was a herd mentality who changes their tune based on what the stock market does, it is economists! They predict doom and gloom at major bottoms and predict rosiness at the tops. They have predicted a jobless recovery for one reason only: The market is rising and jobs are not! They followed two tapes at once LOL!! They cannot see anything but the trend at hand. Nor does their jobs allow bearish behavior in general. Its a great conundrum they will never overcome. Just like "analysts".

The Fed "allowed" Lehman to fail and it caused the panic of 2008. Hogwash! The market was already breaking down hard. There were so many potential "disasters" in 2008 it wasn't funny. Lehman just happened to occur near one of the key "breakdown" spots.

Again believing in the omnipotent Fed that "allowed" the failure...just think about that. Let it sink in. And now think about this: Who saves the FED? Why is it that their balance sheet is allowed to bloat to trillions? Is it a matter of "good faith"? What if that faith breaks?

There is a massive movement in which 75% of the country supports an audit of the FED. That is the truth of the matter. That is not supportive. That is mistrust. That is proof of a loss of faith.

About the mantra that the Fed "saved" us from depression; that's a matter of counting your chickens before they hatched if you asked me. And again, if the general media and all economists spew this as "conventional wisdom" I say its likely wrong!

They cannot wipe out the reality of the situation (which is bad and going to get worse) but somehow permabears converted into bulls and all those who remain permabears have latched onto the "liquidity" theory to make them "give in" to the higher powers (mostly power of the FED and GS or whoever). So they still say "it is all bullshit" yet they are bullish underneath because they cannot explain it other than manipulation.

So even the remaining permabears are predicting higher prices even as they remain permabears!

Here is the current permabear conventional wisdom: "Oh a crash is coming, but its not gonna happen until XXXX (insert some random date months or a year away)...Don't fight the FED and GS man!

And now after all these months, traders have locked onto this "conventional wisdom" and it has permeated their thinking. Even the smart traders and particularly the permabear traders. You are trading with the likes of the general media's number one talking point (Fed is in control - always). You are trading with the idea that "stimulus" is the only cause of the rally. You are trading with the idea that you must "foresee" when this stimulus will end (a lot of it already did end by the way). You are trading with economists. You are trading with Cramer. You are entrenched with the herd mentality.

You are the conventional wisdom.

Good luck with that.
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