There is an interesting (albeit flawed) analysis in this month’s New Yorker by John Cassidy: Rational Irrationality. The subject is “the real reason that capitalism is so crash-prone.”

The author’s main point seems to be its rational to pursue profits even in an irrational manner when everyone else is profiting from it. Indeed, to miss out on gains — even ruinous ones that force your firm into bankruptcy — is irrational.

How can we spot the flaw in that argument?

Many children have been admonished as a kid, “If all your friends jumped off the Brooklyn Bridge, would you?” Yet that excuse seems to be the basis for some of the worst, money losing decisions made by the financial sector.  All of the cool kids were doing it!

Consider:

“The same logic applies to the decisions made by Wall Street C.E.O.s like Citigroup’s Charles Prince and Merrill Lynch’s Stanley O’Neal. They’ve been roundly denounced for leading their companies into the mortgage business, where they suffered heavy losses. In the midst of a credit bubble, though, somebody running a big financial institution seldom has the option of sitting it out. What boosts a firm’s stock price, and the boss’s standing, is a rapid expansion in revenues and market share. Privately, he may harbor reservations about a particular business line, such as subprime securitization. But, once his peers have entered the field, and are making money, his firm has little choice except to join them. C.E.O.s certainly don’t have much personal incentive to exercise caution. Most of them receive compensation packages loaded with stock options, which reward them for delivering extraordinary growth rather than for maintaining product quality and protecting their firm’s reputation.” (emphasis added)

Pardon me, but the easy choice of aping your competitors ruinous policies is hardly CEO leadership. Sometimes, you have to make the difficult decision, even if it costs you short term. Otherwise, this line reasoning requires one to assume that there is never any “objective reality.” It is herding writ large, only with billions of dollars leveraged up. There is never a good reason to practice risk management, to avoid aggressive speculation when your peer group is so engaged.

For example:

“This was the climate that produced business successes like New Century Financial Corporation, of Orange County, which originated $51.6 billion in subprime mortgages in 2006, making it the second-largest subprime lender in the United States, and which filed for Chapter 11 on April 2, 2007. More than forty per cent of the loans it issued were stated-income loans, also known as liar loans, which didn’t require applicants to provide documentation of their supposed earnings. Michael J. Missal, a bankruptcy-court examiner who carried out a detailed inquiry into New Century’s business, quoted a chief credit officer who said that the company had “no standard for loan quality.” Some employees queried its lax approach to lending, without effect. Senior management’s primary concern was that the loans it originated could be sold to Wall Street. As long as investors were eager to buy subprime securities, with few questions asked, expanding credit recklessly was a highly rewarding strategy.”

I disagree. Chasing short term profits regardless of cost is not “Rational Irrationality” — its short termism of the worst kind. And if it ultimately leads to your firm’s liquidation, how rational is that?  That is the equivalent, IMO, of suggesting you can set the race track record on the straight away, ignoring the hairpin turn at the end. So what if you smash into the wall! You were, for a moment, winning!

Rational Irrationality” asks us to ignore the repercussions of our behaviors. We can rationalize short term gains at the expense of long term losses, because we need to obtain quarterly profits regardless. Apparently, when it bankrupts the company, only then with the benefit of hindsight can we see what went wrong.

I am terribly sorry, but that is precisely the sort of thinking that led to the crisis in the first place. Making loans to people who cannot pay them back is not rational when its profitable — its NEVER rational.

Goldman Sachs avoided most of the credit debacle — were they being irrational when they forewent short term profits for a few years — but avoided the worst of the sub-prime debacle? And what about hedge fund manager John Paulson? His fund bet against all of these other players, netting several billions in profits while others suffered from their “Rational Irrationality.” How irrational was Paulson’s investment posture?

On a risk adjusted basis, the behaviors of Citi, Bear, Lehman, New Century and others was hardly rational. Call it whatever you want, but do not forget this simple fact: It was the sort of narrow, risk-ignoring thinking that is ALWAYS rewarded in the short term, and ALWAYS punished in the long term.

~~~

One last thing: The article also manages to get through the entire subject without so much of a mention of Hyman Minsky, the economist behind what has become the definitive theory of why Capitalism is so crash prone: Stability breeds over confidence, which breeds instability. See Stephen Mihm’s aricle, Why capitalism fails for an excellent discussion of the same. Perhaps understanding that aspect might provide the reader with greater insight than rational irrationality does . . .

>

See also
The synchronous lateral excitation of markets (or pseudo-wobbles)
Paul Murphy
FT Alphaville, September 29, 2009

http://ftalphaville.ft.com/blog/2009/09/28/74351/the-synchronous-lateral-excitation-of-markets-or-pseudo-wobbles/

Source:
Rational Irrationality
John Cassidy
New Yorker, OCTOBER 5, 2009

http://www.newyorker.com/reporting/2009/10/05/091005fa_fact_cassidy

Category: Bailouts, Corporate Management, Credit, Psychology, Really, really bad calls

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

161 Responses to “Can Irrationality Be Rational?”

  1. Mannwich says:

    I’ve been saying this for years: we are “competing” ourselves into oblivion.

  2. wally says:

    The extensive investment in derivatives in recent years means, essentially, that all the big financial institutions were making money (or thought they were making money) off each other, not off any ‘primary’ investments.

    Obviously, they cannot all make money off each other. And here we are today.

  3. HarryWanger says:

    At a corporate business level, this is terribly flawed. At the retail investment level, it works like a charm. Again, I keep advocating buying on any dips of 2-4% since that’s as deep as any pullbacks were and continue to be. Once again we saw a 2-3% pullback only to be met with buyers. This has worked on all three pullbacks since July.

    On that level, yes follow the crowd to make money.

  4. Marcus Aurelius says:

    Hey, Harry,

    How far did RIMM pull back?

  5. JohnDoe says:

    Completely agree Barry. This is the exact sort of thinking/behavior that led us into this crisis. The only thing that makes this sort of thing rational is on a personal level for the CEOs of large public companies. Because they are scrutinized on a short term basis they are essentially forced to make short term decisions. If they make the right choices that will be beneficial for the long run but in the short term their firm trails its competitors the CEO will be thrown out quickly. IMO that is the main problem, the immense amount of pressure and focus applied towards short term results by wall street investors (if you can even call them that).

  6. HarryWanger says:

    Don’t know. I stopped out on it as I said several times at -4%. AAPL continues its run nicely.

  7. Thor says:

    Hey Harry! Was wondering when you were going to pop up with the 2-4% limit to the pullback.

    We have some exciting economic news scheduled for release this weekend. Care to take a crack at how they’ll turn out? I, for one, am waiting with baited breath to hear what you have to say.

  8. Thor says:

    This week – sorry. Still on my first cup of coffee

  9. VennData says:

    …by extension, there then “must” be superior returns available to contrarians, over the long haul.

  10. HarryWanger says:

    After examining the numbers over the weekend, it’s very clear that the housing numbers were not that bad at all. That’s part of the reason there was no follow through on that news. I was off considerably on Durables though.

    This biggest news this week is the Employment Situation. Consumer confidence we already heard so that’s a non issue. Case Shiller, we just go the housing numbers. GDP is the third revision, so no news there. We got a glimpse into ISM last week, so that should be strong.

    Most of the economic news this week is pretty much known. No negative market movers there until the reports on Friday. ISM should be strong and we know that employment can’t be worse since layoffs have dropped off sharply.

  11. Marcus Aurelius says:

    The indices lead the way.

  12. manhattanguy says:

    RIMM as I mentioned in my last week post might try to close the gap from April. But that might take some time. I wouldn’t mind playing a bounce around low 60s.

    Market is on steroids again

  13. Bruce in Tn says:

    Certainly irrationality can be rational. A single man storming a machine gun nest. Betting in Vegas even though you know the odds always favor the house. Going out on a blind date. Harry’s parents deciding to have more kids after they saw Harry…

  14. HarryWanger says:

    manhattanguy: Yes, the market is on steroids and it continues to be the easiest market in my life time. As everyone here knows, I keep suggesting that we will not see anything stronger than 2-4% pullbacks through this year. That pattern was successful once again on the indices. And, as I’ve stated since July, I don’t understand why people get so pissed about it either. It’s easy money. Participate. You know, yes, know, it’s going to end the year higher. Yet for whatever reasons people choose to complain about the market going up rather than profiting from it.

  15. gloeschi says:

    Rational Irrationality: In a closed system, rational decisions by subjects can, or even must, lead to irrational outcome.
    Lets assume the stock market is a closed system. If you took the rational decision to sell just when things look dire (ie September 08 – March 09) and bought when the outlook was bright, you would underperform.

  16. Transor Z says:

    “Rational irrationality” is just an oxymoron hook in the title of an article that’s conflating different important issues.

    1. Industry-wide standards (or lack thereof) provide “cover” for corporate behaviors.

    2. “Irrational” is economist/analyst code for “we don’t know why people behave this way.” Human rationality is not defined by profit-seeking behavior in business pursuits. That’s an ideological position, not a scientific one. A big reason why we’re seeing the ascendancy of behavioral economics and the decline of Chicago School nonsense.

  17. manhattanguy says:

    @HW: While I don’t agree with you on your Economic recovery thesis, I agree markets might continue to go up based on “false hopes”.

    As long as you have tight stops, you can surely play the market from the long side. I have two longs – $UCO and $RAX against shorts in $COF.

  18. WaveCatcher says:

    I don’t understand why BR is arguing against “Rational Irrationality” since it is NOT mutually exclusive with Short Termism as he implies. The two are self reinforcing.

    Whenever you are gambling with somebody else’s money, it skews the reward/risk. Doh.

    I submit say the underlying cause of our economic demise is Moral Hazard. The people making the risk decision were decoupled from the loss. That goes for the TBTF banks, the rating agencies, the executives at the irresponsible shadow banking institutions (like Angelo Mozilo, Richard Fuld) etc.

    We have a economy that is based on musical chairs. Now we are getting down the the last couple of chairs and its getting hard to find a place for everybody to sit.

  19. rob says:

    Market going up? It seems obvious to me that it is all the terroristic long buyers that are trying to bubble up the market! When will the SEC (and other powers) step in and halt all the long buying????

  20. Onlooker from Troy says:

    BR: “That is the equivalent, IMO, of suggesting you can set the race track record on the straight away, ignoring the hairpin turn at the end. So what if you smash into the wall! You were, for a moment, winning!”

    Love that analogy! It would be even more apt if it was a bus full of nuns and other innocents and the driver (CEO and other top execs) had an ejection seat and parachute to get out at the last minute, while the rest burned to ashes. Then he walked away with a smirk on his face recounting the rush he got while setting the record (and counting his cash, of course).

  21. The driver gets a big bonus for setting the record, of course!

  22. [...] little to do with “greed, overconfidence and outright stupidity.”  (New Yorker also Big Picture, FT [...]

  23. bubba says:

    i think you’re off the mark here barry. “rationality” for the most part is relative. if i’m not mistaken, most of the banksta executives still made out fine financially, even though their firms may have gone under. so it was quite rational as far as they’re concern. would going back into a burning house (knowing that you’d face certain death) to save a loved one be rational? and what if that “loved one” was your dog fluffy? still rational?

  24. howard0339 says:

    My experience from the bowels of a small but profit (commissions) hungry firm is that to a man the suits hated everyone who made more money than they were making. Most hated were the movie and rock stars who made money it was thought the moral degenerates didn’t deserve. Everyone bragged about making more money than the president, more than any record company exec, and from time to time more than even Madonna. Nobody thought about tomorrow until five minutes before midnight.

  25. winstongator says:

    What you have is personal interests not aligned with the interests of the firm. You make money, firm goes bankrupt, you still have the money.

    Consider the mortgage broker who refused to originate liar loans. He wouldn’t have been able to loan as much, and the customer would go to the guy in the cubicle next door. How long could he hold out? It was at the top that the complete disregard for underwriting came.

  26. winstongator says:

    I would also say that accounting tricks allowed profit to be booked on cash that would trickle in month-by-month. The same single action brought profits yesterday and huge losses today – something wrong with the accounting.

  27. Mannwich says:

    It’s all about culture. The herd just follows what our “leaders” are doing in gov’t, corporate, religious, and other sectors. It’s all about getting rich as quickly as possible. Nothing else matters.

  28. ItalicBold says:

    HarryW, if you doubt the value of TA you should check out this very simple case study of RIMM’s recent action:
    http://www.youtube.com/watch?v=AUZv6lk9eq4

    Great example of simple TA at work.

  29. call me ahab says:

    it’s all good-

    stocks up- economy must be stellar-

    times could not be better- the rational man goes all in on this sure thing-

    makes me proud to be an American-

    tackling tough issues- who needs that- with the Fed there to lead the way to new prosperity

  30. farmera1 says:

    Is it rational irrationality or irrational rationallity. I don’t know, but here’s what I’ve seen.

    The big pay (those $100 million pay days must have been earned, and deserved how else would they be tapped as one of the chosen few to be so wealthy) is based on quarter to quarter profits (which translate into stock prices and that ultimate slot machine payout for stock options). So who cares what “might” happen a year or so down the road. Leverage/risk/derivatives/creative accounting are good moral capitalisitic endeavors. Just ask Greenspan (or better yet read his book Age of Turbulence) . The whole system including dynastic wealth passing down to the next generations was set up to make the few rich. It worked. So I’d say it was completely rational.

  31. HarryWanger says:

    ItalicBold: RIMM is down because they missed on revenue and gave a poorer outlook than expected not because of the chart. If RIMM beat, that entire analysis goes out the window. That’s the problem with charts.

  32. HarryWanger says:

    ahab: check out this excellent article: Hamilton: Consumers Are Alive & Well and Have Been All Along http://www.cnbc.com/id/33057218

    It’s pretty much what I’ve been saying regarding the consumer. I think too many people are caught up in the “consumer is dead/closed wallets” mantra just like they’re caught up in the “money on the sidelines” nonsense. No, the economy is not stellar but it’s growing and, as I’ve been saying, we’re about to enter a mini economic boom phase.

  33. Boo-urns says:

    Barry,

    normally agree with you 100%, but I think you’re missing the point here. There’s a reason that people like you weren’t running big firms. And if you had been, and refused to book the “easy profits” that mortgage securities and derivatives were seen as providing, you would have been fired.

    The fact that you can only cite Goldman as a contrary example is telling. I’ll leave it to others who’ve studied Goldman’s BS more closely than I, but isn’t it the case that Goldman was in fact heavily exposed to mortgage and other credit assets? But they got the AIG lifeline and shifted out of their exposure in late 07 (when many, but not most (see, e.g., Chuck Prince), Wall Streeters were beginning to see the iceberg ahead).

    Not sure what you do about the “cool kid” crowd mentality. And I think that jumping off the bridge is a bad analogy. It’s more like getting a bunch of tattoos of your favorite pop-punk band and then smoking up crack and meth because everyone else is doing it. Where the consequences aren’t as immediately apparent to the juveniles on Wall Street and in the media, but the “benefits” are.

    ~~~

    BR: Its GS, it was jamie Dimon, and it was every other partnership that was not public.

  34. Boo-urns says:

    HarryWanger,

    simple question for you.

    Who’s going to buy the stuff that your public companies are selling? The overly indebted American consumer? The austere Europeans? The underpaid and export-dependent East Asian countries?

    I guess that’s questions, not question. But having just experienced an economic crash that was supposedly impossible according to the sophisticated quant guys and the Newspeak they spoke, I’m a little curious as to whether you can describe in plain English why you think the consensus that we’re going to experience an extended flat “recovery” or possible a double dip is incorrect.

  35. manhattanguy says:

    @HW: Agree TA alone cannot be used to predict a stock price.

    But I would also add that this market is not going up because of great fundamentals. It’s going up because of Fed’s liquidity support and bunch of investment banks buying it on false hopes. This rally will collapse in the near future.

  36. call me ahab says:

    useless article Wanger- basically says nothing- the writer should be fired for writing somehting so vapid and uninteresting

  37. scepticus says:

    Keynes pointed all this out long before minsky. In fact, mercantilists as early as the 16th century were writing about the same thing. We have to ‘rediscover’ this shit every 50 years.

  38. ItalicBold says:

    @HarryWanger, I disagree. The TA was warning that the market expectations of beating earnings was heavily and unrealistically priced in. The market was expecting nothing less than an earnings beating.

    I thought you studied short term candles anyway?

    TA is all about probabilities, its STATS 101. It wont always be right, but if you have a bunch of indicators you have found to be reliable all pointing towards the same thing you generally have a high probability of predicting market action. As he said in the video at the vary least you should have considered moving your stop higher. After all if the earnings DID beat your stock would have done nothing but rocket right? A 4% loss is a pretty loose stop….

  39. call me ahab says:

    “This rally will collapse in the near future.’

    puleeease- with the Fed there- watching your back- productivity going up (who needs employees)-unemployment leveling off because people falling off the rolls-

    all good signs- who said 20% unemployment is not good for the economy-

    silliness- revenues will continue to increase- not sure how – but it’s going to happen- the stock market is predicting so- so it must be true

  40. call me ahab says:

    and all you doubters out there- H Wanger has this shit down cold- all the data coming out this week- better than expected- Harry said so-

    he knows what he’s talking about- I’m sure of it

  41. manhattanguy says:

    Dow 10k and S&P 1100 looks inevitable

  42. Marcus Aurelius says:

    HarryWanger Says:

    “ItalicBold: RIMM is down because they missed on revenue and gave a poorer outlook than expected not because of the chart. If RIMM beat, that entire analysis goes out the window. That’s the problem with charts.”
    _______________

    “If RIMM beat . . .”

    But they didn’t.

    Hadn’t it already been determined the RIMM had missed its (the street’s?) estimates before you made your ill-fated buy? Isn’t that the problem with making over-broad statements concerning what, exactly, is driving this insane (irrational) bull and what will happen in the future? Keep buying the dips Harry, and someday soon, the biggest dip of all will own you.

  43. dasht says:

    Rationally-irrational-rationality: So, your peers start doing something stupid on a massive scale and you can see that they are getting huge short-term gains but you also, because you are so smart, know they are headed for calamity. If it were the case you had a little bit to play with to dip your toes in and, gasp, try and time the market a bit: obviously go for it. Someone suggested that above (“you know the year will end higher”).

    On the other hand, you might know that while your peers are headed for calamity, your portfolio is solid, man, solid. So, bite the bullet and under-perform for a little while, then come out smelling like a rose.

    On the third hand, you might strongly suspect that your peers are not only setting *themselves* up for a world of hurt, but that your own portfolio – once solid, man, solid – is going to be collateral damage. Then you have little choice but to try to beat your peers at their own game for short-term liquidity, and meanwhile buy up the sleepers that you reason will be the next solid portfolio down the road.

    Alas, we don’t hear the CEO’s and other fiduciaries saying that. We hear them saying they just couldn’t get away with not going all-in to take some of those profits. So, Barry is right about the CEOs but there are cases when irrational rationality, so to speak, is the right bet.

  44. ellidc says:

    I think the “rational” part to the rational irrationality, aside from banking personal short term profits from gambling opm long term is summed up with the familiar aphorisms:

    The market can stay irrational longer than you can stay solvent.
    and
    Being too early is indistinguishable from being wrong.

    Of course, you can just stick to deep value no-debt long positions and never do too bad, but you probably won’t end up attracting tons of money.

    Additionally, there are a number of things that we all do right now that are economically speaking “rationally irrational” Accepting federal reserve notes or electronic notations as payment for real things is a big one.

  45. techy says:

    how can everyone miss one of the most important reason why capitalism failed in USA.

    private profits….public risk…public loss.

    usually 95% of a company are owned by shareholders(mostly mutual funds and pension funds…who always want to be nice with management of companies)
    95% of profit is wasted/spend based on the whims of management…who get huge bonuses if there are profits…and they use to acquire and grow bigger…or simply on corporate jets etc…you get the picture.

    to above you can also add…that management use that public profit to buy washington influence….and there you go perfect for the select few who managed to cash out by selling their shares to public and become billionaires but still enjoy all the benefit and no risk.

    BTW why does shareholders cannot demand accountability from management? (lets say some company has 35 billion in cash…its completely at the whim of the management to do whatever they want with it…most of the times paying upto 70% premium for some company…..just to get a boost to their ego)

  46. leftback says:

    This is such a ludicrous Alice in Wonderland moment in the markets that normal discussions of rational or irrational behavior should be suspended until reality reasserts itself.

    It was rational (not at all irrational) to follow the liquidity when the FED began QE. Now that they are making vague noises about reverse repos it is less rational to buy into an overvalued market.

    But: “the market can stay irrational…” etc.

  47. HCF says:

    If a bunch of insane people have a great deal more liquidity than you do, then it’s best to go with the flow, or take your ball and go home. That’s the problem with the market these past few months. You have no idea when it will end, but I’m guessing that when it inevitably does, it will be very ugly…

    HCF

  48. HarryWanger says:

    ahab: “useless article Wanger- basically says nothing- the writer should be fired for writing somehting so vapid and uninteresting”

    Why? Because it doesn’t fit your doomsday scenario? See that’s the problem with the Failure Caucus, they refuse to believe, even when facts like those in the article are presented, that we are seeing growth. That’s why they don’t participate in the “fake, irrational” rally and miss out on big profits.

  49. HarryWanger says:

    Marcus Aurelius: As I have said, and it’s been proven to be correct again, buy any shallow pull backs of 2-4%. It’s happened 3 times now since July and advanced every time.

  50. Thor says:

    LB – Yet we’ve seen this before, pets.com, etc. How long did the .com mania go before that finally imploded? I’ve said before and I’ll say it again, this market can go up as long as it’s going to go up. Whether it makes sense or not is irrelevant. What I would imagine is the most important aspect of this market for traders is to decide whether or not you want to play in it, and if you do, how long do you want to play it? Very scary, are we going to go up for another two months? Or another two years?

  51. Mannwich says:

    Is this “rational” or “irrationally rational”? Me-thinks the former. Sorry Ben, but your grand experiment is going to fail unless/until you some trust & confidence comes back to our system.

    In order to get people to spend (and not save or hoard cash), the majority of people need to have REAL, lasting confidence that the rug isn’t going to be pulled out from under them at any moment in their job, their investments, their health care, you name it, by a corrupt system run by corrupt players. Until that issue is sufficiently addressed, we are nowhere regardless of where Wanger’s la-la land markets go.

  52. Mannwich says:

    Sorry, I’m so irritated (again), I forgot to post the link:

    http://www.calculatedriskblog.com/2009/09/pimco-personal-saving-rate-to-exceed-8.html

  53. HarryWanger says:

    manhattanguy: You are correct, Dow will take out 10k easily and SPX will do the same with 1100.

    Barry: Didn’t you add QID last week. I remember stating that if you did, it would need a very tight stop. Hopefully you exercised that stop.

  54. franklin420d says:

    Harry your undying optimism is almost infectious and you are a much more interesting person when you state what your beliefs are, whether right or wrong they are your beliefs.

    I read the CNBC article you posted and a few questions
    Article: “This news, along with most other news in the last year, suggests that until now”
    Until NOW!

    Article: ”consumers have been largely dormant, paralyzed by fear through the course of the recession.”
    Paralyzed by fear.

    Article: “Sales have declined for many major retailers and small businesses; this is not a point that can or will be contested”
    Sales decline can not be contested.

    Article: “Instead of going on vacations, buying expensive jewelry or buying new cars people are indulging instead in going out for dinner and drinks”
    Instead of buying cars

    Article: “These are all manageable purchases that have been kept in the budgets of many consumers.”
    Kept within the budgets of many consumers

    It also states a number of percentages, but does not say what that percentage is compared to, Case in point if your Detroit Lions win a game this year they can be considered 100% better then last year, but as a team or franchise are they truly better?

    I hope things get better with a more frugal consumer leading the way.
    But I am also realist enuff to know, in a large part, consumer debt has allowed the economy to grow over the last few decades.

    A consumer who is willing to repair their jalopy instead of getting a new car, is not going to lead to a robust economy. A consumer willing to take on new debt and purchase that car will.

    I believe many of the people on TBP do not share your optimist view point, because they feel the consumer needs to pay off the MASIVE amounts of debt they currently own, before they can seriously concider taking on new debt.

    It is amazing that two people can read the same article and come away with two completely different points of view.

    And I find it hilarious that you are giving trading advice to the man, who not only wrote a book and is getting national exposure, but who also created this blog – I hope you put tight stops with RIMM :)

  55. HarryWanger says:

    Mannwich: Did you read the article I posted about consumer spending?

  56. manhattanguy says:

    @Mannwich: Is it just confidence though? Don’t people need jobs and/or availability of easy money to come back and play their “consumer” role in the economy?

  57. HarryWanger says:

    franklin420: I’m not giving trading advice to Barry, I simply stated that he bought QID last week. At the time I stated that I hoped he had a tight stop since the markets, especially the COMP, would continue higher. And yes, I did have a tight stop on RIMM as I stated when I made the buy.

  58. franklin420d says:

    @manhattanguy – Don’t be silly…..

  59. franklin420d says:

    @ Harry you did NOT state it when you made your buy, you stated it after the fact.

    “You should wear a helmet when riding a bike” – is advice.

    “it would need a very tight stop” – Sounds like advice to me

  60. leftback says:

    Today is highly unusual, but you would only know it if you look at FX and Treasuries as well as the SPOOS.

    I remarked on Macro Man today that this is CORRELATION BREAKDOWN, the spx divorced from EUR:JPY and EUR:USD, when correlations start to break, VIX often jumps.

    Today could finally be the day – JOHNNY retail and harry WANGER going long, with the HEDGIES and IB DESKS sitting in cash and Treasuries waiting to SHORT the crap out of the market.

    Johnny and Harry – naked longs…?

  61. Mannwich says:

    @manhattan: Real confidence (and thus a REAL recovery) FOLLOWS a structure/system that is not perceived to be rigged against the average person where there are enough good-paying jobs, access to affordable health care, etc. There’s a real sense deep down that things are terribly broken right now. All the money machinations by Ben & co aren’t going to change that.

  62. Mannwich says:

    @HW: No.

  63. hopeImwrong says:

    As Barry Ritholtz states “Goldman Sachs avoided most of the credit debacle.”

    REALLY? What about the calendar month which never made it into their quarterly reports? Where would they have been without government bailouts of their counter parties?

    Are you quibbling with calling the behavior of corporations rational when it is self desctructive longer term? Because, I will tell you, having worked for corporations for over many decades, at many stages of developments in the lifecycle of a corporation, THEY ARE OFTEN SELF DESTRUCTIVE. And they always ape the “successful” behaviors of their competition, and they always copy the unsuccessful behavior of the leaders in the industry. I don’t think I need to provide examples.

    Is it rational to pad your pockets with profits and step off the bus with your golden parachute before it drives off the cliff? Probably, in this culture, definitely.

  64. HarryWanger says:

    franklin: Actually I stated it in a post probably 2 minutes later when the stock was actually up from my buy.

    leftback: I’ve stated that on each dip I’ve been adding to positions, mostly index efts. Only lone equity is AAPL right now. And, as I stated at the time of that AH dip, I added more. I move my stops up accordingly.

    Mannwich: “There’s a real sense deep down that things are terribly broken right now.” Not from the people I’ve been talking to. Actually that sentiment seems to only apply to this and other bearish boards.

  65. manhattanguy says:

    @MW: I agree there is a sense that things are broken right now. But my point was that in order for people to gain confidence they need to have the means (food, clothing & shelter – from maslow basic needs). So without the job situation improving, we are not going to see a full scale recovery for a while. We are referring to “consumer confidence” and not the confidence in the structure/system.

  66. Winston Munn says:

    If it is rational to be irrational, I should stop ignoring the neighbor’s dog and do what he tells me to do.

  67. Mannwich says:

    @manhattan: I totally agree. The jobs piece of it is enormous, probably the biggest factor in real confidence returning. It’s not just people who are out of work either. I would argue that the crucial piece is that those who have jobs right now maintain their confidence tocontinue spending (and not hoard for a rainy day) their cash. Ben & co have put a bandaide on things. That’s really it.

  68. leftback says:

    “There’s a real sense deep down that things are terribly broken right now.”

    I agree with this. Structurally things are held together with duct tape.

    “Not from the people I’ve been talking to. ”

    To whom and where are you talking, Harry? Things are good in DC and NY areas but the Midwest is in dire straits. CA is OK in the wealthy areas and dead in the agricultural Central Valley. Exurbs everywhere are struggling.

  69. catman says:

    I recently saw an interview with William K Black where he discussed this sort of thing. If you dont play along you miss your numbers and get fired. For many people there is no long term. Or no job. On the other hand he did have a name for this sort of corporate culture. I’m pretty sure it included the word criminal…

    ~~~

    BR: Then you suck it up and resign.

    Vee ver jest vollowing orders is not a valid excuse.

  70. call me ahab says:

    winston Says-

    “I should stop ignoring the neighbor’s dog and do what he tells me to do.’

    dude- that’s a bit weird- you’re scaring me D:

  71. Mannwich says:

    I feel better now and will just use Wanger’s anecdotal evidence that all is well again. Talk about rational irrationality or rational (willful) ignorance. Good grief.

  72. call me ahab says:

    mannwich-

    finally- you understand-

    it’s 1984 all over again in 2009-

    new version “I Love H Wanger”

  73. HarryWanger says:

    Mannwich: And it’s rational in your mind that your anecdotal statement that “There’s a real sense deep down that things are terribly broken right now” is absolute?

    Leftback: I’ve been talking to people everywhere. I travel around the country frequently. It’s even amazing to me how optimistic people have become. They believe the recession has ended, for the most part, and not “terribly broken”. Even in Detroit the mood has changed with many. Had a conversation this weekend with a childhood friend still living in the area. He’s gone from gloom of late ’08 to outright optimism.

  74. HCF says:

    Simple question, Harry:

    Under what condition(s) would you no longer be so bullish?

    HCF

  75. franklin420d says:

    @Mannwich 2:38 yea, you can put me down as “hoarding for a rainy day”

  76. markd says:

    You can boil the New Yorker article down to this: Even tho you just filled your gut with berries, when you see a baby gazelle that has lost it’s mother you should kill and eat it also. You can take the primate out of the jungle . . . Where he falls down is (the writer) he doesn’t point out a lot of people made a lot of money(and kept it) take the other side of the irrational bet.

  77. call me ahab says:

    “outright optimism.’

    so what’s the good news?

    also- that article sucked – said absolutely nothing and could have been reported by a middle school journalism student for the lack of information it contained- and-

    please- Harry- don’t waste my time unless it has some meat to it- but i can see why you liked that “well crafted and researched” article- no real data-

    ZzZzZzZzZzZzZzZzZz

  78. HarryWanger says:

    HCF: If we see quarterly reports that aren’t showing actual growth, I would not be so bullish. But I can’t see that happening for the next couple of quarters for the simple fact of inventory restocking. That alone is going to create the near term mini boom I keep talking about.

  79. leftback says:

    “It’s even amazing to me how optimistic people have become.”
    It’s late summer, it’s human nature. Debbie lost weight and has a tan; Johnny made back some of his losses.

    “He’s gone from gloom of late ‘08 to outright optimism.”
    So he’s a great market timer… most people have the same flaw, Harry. “Greedy/fearful..” – you know the quote.

    Taking taxpayer money and shoveling it into bankers’ pockets means that this system is BROKEN.

  80. HarryWanger says:

    ahab: “Harry- don’t waste my time unless it has some meat to it- but i can see why you liked that “well crafted and researched” article- no real data-”

    Huh? Seems to me there was a lot of real data in that article. That was the whole point of it.

  81. franklin420d says:

    Harry did you read my entire reply about that article or just the part where I was laughing at you for giving Mr. Ritholtz such out standing trading advice.

    If you read the whole reply you will see the where I refuted any and all data points in that article.

  82. HCF says:

    @Harry:

    YoY comparisons will be easy for public companies through Q4 of this year, but the bar will be much harder to jump over beginning next year. Any shortfall in expected growth, be it in quarterly earnings or GDP, and I think markets will pull back much more violently than you seem to believe.

    HCF

  83. Marcus Aurelius says:

    HarryWanger Says:

    “I travel around the country frequently. It’s even amazing to me how optimistic people have become. They believe the recession has ended, for the most part, and not “terribly broken”.”
    ______________

    These are different people than those who swallowed (hook, line, and sinker, I might add) the idea that real estate never goes down, right? The wisdom of crowds.

  84. rustum says:

    I was thinking of buying couple of ADR’s for quite some time. Some how, never able to make a trade. One of them went up by 2 times. Lack of confidence is a big undoing.

  85. I-Man says:

    “debbie lost weight and has a tan…”

    LOL!

    You’re killing me Left!

  86. HarryWanger says:

    HCF: “Any shortfall in expected growth, be it in quarterly earnings or GDP, and I think markets will pull back much more violently than you seem to believe.”

    No, I believe there would be a violent pull back if those earnings or GDP are bad. But I don’t see that happening any time soon. Growth is going to look strong for a lot of companies for the inventory story, which in turn will create surprisingly stronger GDP for at least the next couple of quarters. A mini economic boom.

  87. leftback says:

    I-Man: Debbie tends to gain a few back over the winter.

    A few too many sliders, Michelobs and Twinkies™, and there’s that big lunch with the girls at Cracker Barrel.
    Then it’s time for those elasticated waist trousers .. but by then it’s February and she looks like Michelin Man.

  88. call me ahab says:

    i have a prediction for you Harry-

    you will keep coming to this site as long as the market holds up- but you won’t be back after hit takes a big hit and stays down for the count for a while-

    you will be hiding under a desk somewhere- wondering what happened to the good times- you know- the easy money-

    you won’t be here telling us the “indices will lead the way” after that – will you Harry?

  89. leftback says:

    Not like JOHNNY is svelte, by the way. Joseph A Bank has some special sizes for him, American tailoring.

  90. HarryWanger says:

    ahab: Your prediction is wrong. I can’t take a big hit. I’m up substantially on this rally and keep placing trailing stops higher and higher. If there is something in earnings or GDP that indicates a turnaround, I’ll call it when I see it. I won’t have a reason to hide under a desk. This rally has guaranteed me a very handsome profit already.

  91. Fredex says:

    In a game of musical chairs, you may think you are protected by buying an option on a chair. Before you need to exercise that option, it would be prudent to determine if there are more options than chairs.

    More people could have saved themselves if they understood and acted on counter party risk.

  92. HarryWanger says:

    Today’s indices confirm the bullish trend especially when considering the move in the dollar. Impressive day indeed. Indices started out of the gate high and stayed there all day EVEN with a strong upward move in the dollar. That should at the very least make any remaining bears shaking in their boots..

  93. Thor says:

    And how about tomorrow Harry, what’s tomorrow look like?

  94. franklin420d says:

    WOW Harry – I would almost think you are not replying to me on purpose.

    Good thing I don’t have any feelings………. :(

  95. call me ahab says:

    “That should at the very least make any remaining bears shaking in their boots..”

    why? are you under the impression that people here are short? They are more than likely cash or long. That someone has a long term bearish view does not mean they are short the market-

    so tell me again- why are bears shaking in their boots?

    and a person is a bear Harry- because they do not like the macro picture for the economy as well as the country-

    but i doubt you even know what i’m talking about

  96. HarryWanger says:

    Thor: I’m looking for a good day tomorrow. Perceived bad news on Friday couldn’t bring this market down and tomorrow we’ll get good news from Consumer Confidence. Indices are rising strong on good news and barely moving down on negative news. Trend is still 100% in tact and heading higher.

  97. leftback says:

    The indices will lead tomorrow, Thor.

  98. Thor says:

    LB – Amusing isn’t it? Purely for the hilarity of it, of course.

  99. HarryWanger says:

    franklin420: I’m sorry but I guess I didn’t see anything in your response to the article that actually refuted anything in the article. He’s saying the consumer isn’t dead and is trading off to other purchases which, judged from your remarks, you seem to agree with.

  100. HarryWanger says:

    leftback: Where did I say the “indices will lead”?

    ahab: I would venture to guess that many here are either in cash or got burned in short positions over the summer. I doubt there are many long positions here.