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It Only Matters When They Say It Does


I can remember in 1991 watching James Baker walk to the podium to tell the world the results of last ditch efforts to negotiate a peaceful solution to the Iraqi invasion of Kuwait. As he unfolded his prepared remarks and looked up with an expressionless face, I had one finger poised on the sell button and one on the buy button.

He only got the first syllable of the word "regrettably" out of his mouth before I was frantically pressing the sell button. Apparently others had faster fingers for I sold nothing at my limit.

I often laugh at that memory; I had fallen into the same routine as other traders, one that I promised myself I would not. Initially I was always a contrarian, but after several years of trading, I realized that pretense was just as important as the facts. The masses, or more accurately those that represented them, have all the money, so what they "thought" of the facts in the short run turns out to be more important than the facts themselves. Playing the contrarian card was only something to be done very carefully at the extremes, wherever that was.

I do believe I am somewhat balanced now. Markets are driven by the masses until the masses are proven wrong. At that time corrections occur and money is to be made or lost in great degrees. What turns out to be the alchemy of it all is "how educated are the masses and how independently do they think".

Recently, however, I find myself fighting pretense more and more. Perhaps I am just getting old and crazy (if you believe that just stop reading now), but perhaps things are changing, at least over the time I have been trading. Intuitively I believe that in this age of information the masses are actually understanding less and less about the markets and acting more and more dependently.

I watch as everyone rests on each syllable uttered by Mr. Greenspan and the other Fed soldiers. I watch as people still listen to the drone of CEO's even though they continue the same game of "get the stock up" almost without a hitch. This despite the spanking (whoever really learned a lesson from a little spanking?) they received after Enron. I watch as mutual funds vote their proxies in favor of these CEO's, knowing that those votes in the long run will hurt shareholders. I watch the actions of mutual funds, wondering if investors really believe that funds act in their interests or to maximize the fund owner's net worth. How can a portfolio manager answer that positively when they own stocks where they do not even know the true financial conditions of the companies?

People don't seem to think for themselves anymore. Investors accept as truth what the "experts" tell them without any independent knowledge or analysis. But I can't really blame them. Just like Pavlov's dog, the masses have been slowly conditioned to respond only to "what they say that matters and how they interpret things", conditioned as the government spends more and more time actively managing markets.

We have gone from a healthy mis-trust of government to an unhealthy dependence on them. This country was founded on that mis-trust, that is obvious from our sacrosanct protection of individual rights.

That is until recently.
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