Friday, October 8, 2010

Batting averages, icebergs, ideas, and madness of crowds

As speculators, we capitalize from observation and strive to retain an objective view of the market's regardless of condition. We will share this with you, that what is seen in the headlines, or even widely known, is merely the tip of the iceberg. What is underneath the surface is what has high impacts. It is these things that sinks double hulled Titanic cruise ships as an example.

On the day to day level, among the noise and chatter of those getting busy, it is predictable to lose sight and increase error as one is busy scouting out iceberg "tips". We focus on base hits and expect that a 300 batting average successful. Yet a 550 average would be required as investment activity increases to stay in business with little to show for all the effort.  Instead we are like a submarine using radar and evaluating the landscape underneath which supports the surface activity. We find wave theory as a valuable component of our methodology.

We respect Mr. Prechter's work and insight. We also are of the opinion that he represents a skilled investor. Kind enough to share his work, yet smart enough not to give it away for free and find a way to extract predictable cash flow to his operations.

We observe that intellectual productivity in today's society is operating at signifigantly below capacity. The creative destruction in the US as it strives to move from production toward service is significant. Knowledge capital will become more difficult to convert into cash, causing the service sector to grow and the manufacturing sector to grow as required to support future infrastructure and "things".

As Prechter has found looking at thousands of years of expansion and contraction, in the year 2000 we have entered the Dark Ages, where we must innovate and refine future methods to result in growth from new and existing sources of materials and ideas. We will speak plainly, NO, we are not interested in doom and gloom.

Prechter's May newsletter provided below; we have found several independent and objective indicators confirming similar outcomes as well.

Robert Prechter at Elliott Wave International  thinks we’re on the verge of the “biggest bear market in nearly 300 years”.  Prechter, who believes the market moves in predictable waves, says the long-term pattern is one of dramatic upward trends with severe corrections inbetween.

He provides the following chart to show the very long-term trend in stock prices.  Prechter believes the current downtrend is simply the beginning of a much more dramatic move that mirrors past market declines.  Based on this data the market is well overdue for a sizable correction:

“Not even Major League Baseball can rival the stock market’s wealth of statistical data. And after studying the relevant data and analyzing the long-term pattern, Prechter offered this conclusion in the May issue of The Elliott Wave Theorist: “The current bear market will be the biggest in nearly 300 years.“

Yes, Britain’s “South Sea Bubble” in the early 1720s was the last time a bear market was comparable to what we may see unfolding now — it’s represented by that vertical drop which you see on the chart.”

If you are interested in learning more about the South Sea Bubble and many other insights into the ways crowds behave, see our Library

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