1 May 2009

On buying dips in this environment

The idea that this bear market will end and life will return to "normal" is, in the opinion of this writer, completely mistaken. The public domain, as far as opinion goes, in this writers view is still contaminated by the paid optimism of vested interests. The sponsors of our media are the winners of the great boom and their opinions regarding a return to a "dollar hegemony based debt fueled once in a lifetime blowoff" normality must be discounted.

No doubt a golden age based on digitisation and measurment efficiency, smart grids, biology based extraction technologies and a revitalised if somewhat localised agriculture lies ahead but I expect that to some extent the whole globalisation paradigm will have to be rebuilt from the ground up on more economically sustainable grounds. The winners in that recovery, when it comes, are probably small companies unknown to the public.

A true new bull market, if it is not driven by the mere inflation of nominal values must arise out of a backdrop of near total and universal despair and capitulation, not the denial we see all around.

People who rushed to by bargains last time we had a bear market like this one, and those who came after, and those who came after them, were all destroyed..

The singular feature of the great crash of 1929 was that the worst continued to worsen. What looked one day like the end proved on the next day to have been only the beginning. Nothing could have been more ingeniously designed to maximize the suffering, and also to ensure that as few as possible escaped the common misfortune. The fortunate speculator who had funds to answer the first margin call presently got another and equally urgent one, and if he met that there would still be another. In the end all the money he had was extracted from him and lost.

The man with the smart money, who was safely out of the market when the first crash came, naturally went back in to pick up bargains. (Not only were a recoreded 12,894,650 shares sold on 24 October; precisely the same number were bought.)

The bargains then suffered a ruiness fall. Even the man who waited out all of October and all of November, who saw the volumne of trading return to normal and saw Wall Street become as placid as a produce market, and who then bought common stocks would see their value drop to a third or a fourth of the purchase price in the next twenty-four months.

The Coolidge bull market was a remarkable phenonmemon. The ruthlessness of its liquidation was, in its own way, equally remarkable."

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