In my last two articles, I wrote of an Inverse Head and Shoulders forming both here and in the US, which would confirm that a bottom was in place. I also wrote of an ideal scenario where a market pullback to 961 in the US or loosely translated, 4,180 (ASX 200) in our markets would confirm a benign pull back to the ‘neckline’.
In Paul Keating talk, we are experiencing the pullback we had to have … I say, "finally!”
As we sit and wait to see if this is a benign pullback or not, I am drawn to a quote by one of our fathers of economics, John Maynard Keynes.
In 1935, he wrote in The General Theory of Employment, Interest and Money:
“The game of professional investment is intolerably boring and over-exacting to anyone who is entirely exempt from the gambling instinct.”
Keynes was a master investor, and referred to the world of investment as a “game”. I loved how, in his very serious economic paper, he likened it to a game of snap or musical chairs, where you try to anticipate the actions of the crowd.
In those games, if you call “snap!” first or secure yourself a chair before the music stops, you win. Calling markets, he thought, was similar, where you anticipate what others are thinking. He called this “the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practise the fourth, fifth and higher degrees.”
He likened this devotion to anticipating what the average opinion would be to gambling.
In my opinion, the way the world markets have powered up over the past five months from the market bottom of the 6 March, they have resembled a casino. The anticipation of a recovery has been so great, the markets already resemble another bubble.
Given that real world growth cannot exceed about three per cent annually, when we see:
Another famous saying comes to mind: “Houston, we have a problem.”
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