There’s an old joke I heard Woody Allen tell that goes back at least as far as when the Poconos were a big vacation spot….there were two older ladies sitting in a restaurant in the Poconos, complaining about the food. The first said, “The food here is terrible.” The second lady concurred saying, “That’s for sure, and not only that, the portions are too small.”
That’s how I, and most of us, feel about Wall Street—the place is terrible—they crashed the economy and the compensation is outrageously high, but the worst part is that the participation is too small by at least one person—Me. I’m not part of it, earning those huge salaries and bonuses.
When I was first a broker with Dean Witter in the early 80’s, we had a squawk box in the front of our office. Every morning different strategist and analysts would come on to fill us in on their outlooks, offerings or viewpoints. There was a technical analyst named Joe Feshback who would come on and take calls from the field and comment about individual stocks from his chart perspective. Wow was he impressive! He would look up a chart and tell you exactly and confidently what the stock was going to do. I’d been in the markets since the mid 70’s but had never seen this type of guy. It was really great when you were unsure to hear a person boast so confidently what the future would bring. Sometimes he would talk about the general market and what his “indicators” were telling him.
Then came 1987 and the crash in October. The crash itself was Monday 10/19 and the market fell 500 points or over 22%. The week prior it fell every day for a total of 250 points or 10%.
I just read a piece from a technical analyst (chart and number stuff) where she was pointing out how such and such was bullish while such and such was bearish - you know the old economist type commentary of “on the one hand, but on the other”. While it all sounds quite interesting and educated, I find myself asking “why she is doing this”?
That answer is really very simple – she’s trying to make money. She’s doing this by attempting to compare the line-up of certain statistics today with some past line-up, and base today’s action on what happened after that previous line-up. I wonder what the odds are that she will be correct? That’s the question! I can’t tell you how many times, over all the years,” that I’ve seen these proclaimed set-ups turn out differently than the writer’s prediction.
Once again I’m going to have a little fun with a guy who claims to be a technical analyst that uses the Elliott Wave Theory. And yes, it’s easy for me to be a back seat driver but this does illustrate the same type of problems that I repeatedly talk about with these “gurus”.
The Elliott Wave Theory is really far out stuff that attempts to put human behavior into up and down cycles or waves. Each cycle has 5 waves of different dimensions and durations. It got a lot of attention in 1987 when a fellow named Robert Prechter used it to call that year’s crash. Of course, like what usually happens to these gurus, Prechter has done nothing since. He is still in business somehow, but my take is if there are enough of these guys constantly making calls, someone will eventually be right. The problem then is that people will believe and follow them after their famous call, not understanding that the call was pure luck.
On a personal note, here’s a story that illustrates some of the problems with our economy and banking system:
I have a mortgage on my home residence, but no other debts. I have several properties that I have bought for cash. I decided, with these very low rates, that I would do a financing on one of them at about 50% of value. The property is two doors down from where I live. I bought it in February 2009 and completely redid the inside. I have a very stable and good tenant in it. They have been there for two years – actually 23 months – and they just resigned a new lease at 3% more than last year's lease, that starts November 1.