Yesterday’s blog entry reported on an e-mail sent to my by a blogger friend in which he argued that we will not be able to overcome the Buy-and-Hold Crisis until the world regains its ability to approach issues with an ability to reason, something that for reasons that cannot be clearly identified has been lost in recent years (in the assessment of my blogger friend) and my response to that e-mail. Set forth below are the words of the follow-up e-mail sent to me by my blogger friend:
It’s not so much that I see the Apocalypse in the headlights. While I think that’s one (very good) possibility, there are lesser events in history that came close. Think about the fall of the Roman Empire and the 1000 year Dark Ages that followed. Or think about the 1930s and 1940s. That was shorter, but at least as dramatic.
I think we’re on the edge of something like that. When it hits, it will change history and shake out the excesses. Until it does, we’ll continue to play let’s-pretend. That’s the envelope buy-and-hold sits in. We can’t argue against buy-and-hold because it’s the order of the day, and it’s not an accident.
Post 1987, the government decided that the stock markets were a venue worthy of national security consideration. A high stock market portrays peace, prosperity and optimism. The stock markets are no longer free markets. I’ve detected in some of your comments that even you don’t believe that, but consider the following:
— the Fed keeps interest rates artificially low, which lifts the stock market (money that would flow into intest bearing securities instead flows into stocks chasing higher returns) and this has been going on for decades now
— favorable long-term capital gains rates favor stocks and other appreciating assets, but mostly long term stocks
— the wealthiest 1% of the population get most of their income from capital gains
— triggers are in place to keep stocks from falling more than X amount (no free market on the downside)
— govt intervenes when stocks get soft, through various means poplularly known as the plunge protection team
From this configuration, we have stock markets rising when the economy is falling (detachment from reality), a population who generally view the Fed Reserve as omnipotent (“the Fed will NEVER let problem X happen–OVERCONFIDENCE), and a general belief in the stock markets as an all-weather investment.
That’s very fertile soil for buy-and-hold. It’s become a religion and the Fed chairman is it’s god. When you attack buy-and-hold you’re attacking people’s religion. You’re attacking prosperity. You’re attacking America and all that’s “good and right” about it. That’s why they won’t tolerate it.
Charles Smith recently wrote that the stock market is a fraud, and I have to agree. It’s pure manipulation, where price levels are contrived and not allowed to drop by but so much. 5%, 10% max. The evidence of this are the periodic crashes. Prices are pushed to insane levels and when it’s beyond the ability of the Fed to stop it, there’s another crash. Alas, the Fed is not omnipotent. I’m with you that another crash is coming, and I think it will be worse than any we’ve seen so far.
How do you write about all of this? The implications are horrific and no one wants to deal with that. They just want to live peaceful lives and nothing will wake them from their assumptions.
As far as writing about pf–it’s more important now than ever. I approach all of the above by addressing micro strategies. But guess what? Apparently more people want to read about credit card rewards and higher CD rates than the strategies I advance. You’re in the same boat with VII.
I think we’re past the point of thinking we can change people’s minds about the big picture. Best we can do is prepare them for the fall, without necessarily mentioning how it will come about. I think we’re both doing that in our own ways, but until disaster strikes, we’ll have a limited audience.
Does that clarify anything?