So Many Things I Could Have Done - Clouds Got In My Way

The investment cycle is often described as a sine wave, climbing from it's base of optimism to a point of euphoria, then sinking back down through anxiety, fear, panic, and capitulation into a trough of despondency, before rising again to it's baseline of optimism.












That model has always proved a good guide to investors, giving them a map and steady course through the ups and downs and ins and outs of bull and bear markets. The problem this time, though, has been figuring out just where on the sine wave we are.

Take last Monday, for example. After last Friday's fall a student of the sine wave would have concluded that we must be at the point of "capitulation", and yet on Monday the market rose in wave of enthusiasm that looked more "euphoria" than "despondency". In fact, it's hard to remember a time when a market was so bullish in the face of a prolonged and pernicious recession. Recessions aren't usually good for stock prices, and yet it seemed like every expert on Wall Street was on the TV touting stocks as "historically cheap" and imploring investors to "buy, buy, buy".

The question I asked as I looked at the investment cycle was "what is the contrary position when everyone is a contrarian?". I'm certainly no market psychologist, but it seems that even with all the recent carnage on Wall Street, we seem closer to the "euphoria" end of the curve than the "despondency" end. That is, there is an awful lot of bullishness out there, and it's hardly contrarian to be a bull in this environment. The truly contrary position, I think, may be to stay sane in the midst of all this insanity.

That's my strategy anyways, and it will probably be my ruination, but it's at least as good as any other strategies I've heard lately. Either way, it's clear that we won't be given any sense of direction from the President or any of the two candidates. It seems that his financial crisis has become so big that no one can really devise an effective strategy to deal with it.

It sort of reminds me of the time when I used to work as a janitor (er, maintenance engineer). That was my second job out of high school, and not one of the best occupations I ever entered into. I particularly remember that one of the most distasteful aspects of being a janitor was having to clean out the toilets at the buildings where I was assigned to work. Some of you may have worked as janitors yourselves at some point in your lives, and if so then you'll probably remember some of the incredible messes left behind by people who, in other respects, could pass as clean, well-mannered, and otherwise normal human beings.

Being the janitor, though, my job was to clean up after these people, and I found the best way to deal with their disgusting bathroom messes was just to soldier on and try not to look at it. I think that's what we're seeing in the campaigns right now. We've got a couple of canidates facing a huge financial mess and doing their best to soldier on and try not to look at it. What else can they do? Maybe, if they're lucky (and if all those bulls on Wall Street are correct), this whole thing will blow over and come next Janauary they'll breeze into office with a sound economy and a strong wind at their back.

Personally, I wouldn't count on it, and let me just add that it really used to piss me off when, after cleaning up some really disgusting mess in the bathroom, someone would complain to my boss that I forgot to empty their garbage can or clean a fingerprint off of a window. Hey - screw you! Tell you what, if you want me to empty your garbage then here - take this mop and go clean out that bathroom for me. Ok? Ungrateful little...

(I didn't stay a janitor for very long, but in every office I ever worked in I've always tried to clean up after myself and not act like a slob. Despite what your coworkers might think, the janitor knows how disgusting you really are. Just something to think about.)

Anyway, I don't think we're going to get any answers from Wall Street or any leadership from Washington, so we best make do as best we can. Politicians always say that it's a sin to burden our children with our debts, and then they go off and spend another trillion or so, and I have a feeling that one way or another this is going to get really expensive. Some ideas will work, some won't, and then this too will pass. Fortunately, if we manage to survive to the other side and we still have some money left there will be plenty of good places to invest. Until then, all we can do is try to stay sane.