How did the smart people lose their money? Were they not smart enough?
Long ago, and I can't remember where, I read that "the dumb people lost their money in 1929 and the smart people lost their money in 1930-32". For some reason that just stuck in my brain. If that's true, how did it happen? Could it happen again, say, to the "smart people" today?
I believe the answer to that last question is unfortunately "yes". I also believe the answer to the first question can be found in the process of what we're witnessing now.....unending liquidation of assets.
You see, none of us alive today probably under 90 have ever witnessed this process. It's foreign to us. It causes asset prices to fall in a manner that's completely unnatural to us. Smart business people are used to buying beaten up assets at say a 30-40% discount. It's always worked in the past and now the opportunities are everywhere. So they do there due diligence and jump in. The problem is the business doesn't improve, it just keeps getting worse. Soon they've lost half their investment and are in trouble as well. The liquidation starts all over again.
The stock or commodities trader has his reliable over sold buy signals. They fire off so he or she fires off a long trade. The only problem is the usually reliable signal fails and money is lost. They try it again...same result. It gets really, really, really oversold so they double down and bam, down even more. Take a look at a one year chart of the CRB and you'll see this in real life.
Perhaps this is how it happens....how smart people lose their money. Is that what happened in 1930-32? Is that what's happening now right under our "smart" noses?
I've been expecting the market to have an intermediate term rally. Am I expecting too much? Perhaps. I've spotted a symmetrical triangle in the VIX that would be VERY bearish for stocks. Put on a 1 year chart and see if you can spot it.
However, a break above 900 that held would be bullish. The market is still overbought so I'm not sure how it'll swing that. Tomorrow is the jobs report. That could be a catalyst for the liquidation to resume in stocks. Be very careful with any longs here.
I believe the answer to that last question is unfortunately "yes". I also believe the answer to the first question can be found in the process of what we're witnessing now.....unending liquidation of assets.
You see, none of us alive today probably under 90 have ever witnessed this process. It's foreign to us. It causes asset prices to fall in a manner that's completely unnatural to us. Smart business people are used to buying beaten up assets at say a 30-40% discount. It's always worked in the past and now the opportunities are everywhere. So they do there due diligence and jump in. The problem is the business doesn't improve, it just keeps getting worse. Soon they've lost half their investment and are in trouble as well. The liquidation starts all over again.
The stock or commodities trader has his reliable over sold buy signals. They fire off so he or she fires off a long trade. The only problem is the usually reliable signal fails and money is lost. They try it again...same result. It gets really, really, really oversold so they double down and bam, down even more. Take a look at a one year chart of the CRB and you'll see this in real life.
Perhaps this is how it happens....how smart people lose their money. Is that what happened in 1930-32? Is that what's happening now right under our "smart" noses?
I've been expecting the market to have an intermediate term rally. Am I expecting too much? Perhaps. I've spotted a symmetrical triangle in the VIX that would be VERY bearish for stocks. Put on a 1 year chart and see if you can spot it.
However, a break above 900 that held would be bullish. The market is still overbought so I'm not sure how it'll swing that. Tomorrow is the jobs report. That could be a catalyst for the liquidation to resume in stocks. Be very careful with any longs here.
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