Sunday, August 03, 2008

Riding the Roller Coaster

We've been falling in stages since last November. Chart it and look at it. We take a fall, then regain half to two thirds of the fall. This establishes a new trading range where things sit for some period of time ranging from days to a few months. The trading range is the new recovered high down to the low in the current fall.

Then we take another fall, regain half to two thirds of that and establish another trading range. This has happened about 5 times from what I can see. The current trading range appears to be about 10,900 to 11,800 or maybe as high as 12,000 since we've not really tested it yet.

My advice to people is to ignore the trading range. Every rally inside that range is just "noise" and every fall inside that range is more "noise". What would mark a significant departure? Either 5 straight days above the cap of the trading range that also involves increasing values each day (almost impossible at this point) or 2 straight days of falling values below the current floor.

The falls are the most likely things, nearly 100% certain at this point. The problem is trying to guess the timing of them.

Over at TAE, poster "Snuffy" asked, "How do the rest of you see the next few months...say till Christmas will play out? Will some event shake the public to full awareness of our true state? Or will we stumble along,sleepwalking into chaos?"

My reply to Snuffy is that you are asking a very hard question. So far as is publicly known, there is nothing like the fictional Hari Seldon's "psychohistory" science that could predict mass reactions to events so we're just left to guessing.

At some point we're going to be left with the awareness that it's over and there's no going back but countering that is natural human optimism. We are, by evolution, largely selected to be optimistic about the short term (probably because we could not function well if we were too pessimistic). Even doomers tend to be optimists, at least about their own short term future even if they think most of everyone else is screwed.

So given that desire to hope for a better tomorrow, we cling to illusions like fractional reserve lending and "off book" accounting because we really really really want to believe in get rich quick schemes, unicorns, and fairies. So when will the moment of mass awareness arrive? Who knows? But when it does, you are likely to see a stampede for the exits.

The bulk of the modern populace is so poorly educated about modern finance that they will be willing to believe fairy tales from Uncle Sam rather than face reality, if believing in such fairy tales allows them to go on for even one more day without facing the awfulness of reality. Thus I fear that there are a few more steps on this ladder going down before reality sets in. Uncle Sam knows this too, and will try every trick in his book to get the majority of us to keep on believing. At some point this will all fail but trying to predict it is a fool's game, because our species is a fool's species.