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Quote from an article on long term vs short term rates. Lots of other
good articles in the same section.
Followed by a section from an article on consensus and historical
explanations given with the benefit of hindsight.
http://www.pei-intl.com Click on MAIN Scroll down to RESEARCH
then click on Investment. Some good free articles.
"I must admit, that during the early 1970's, 1 would often talk to many
people about the possible direction of the markets. I would have my
own opinion, but by the end of the day my confidence in my own work
would decline. Only after finding that my own opinion would be
correct
afterwards - at least as often or sometimes more so than others - I
realized that too much intermingling was not good. I decided that
right
or wrong I preferred to stand based upon my own work rather than
someone else's. If I was to be wrong, at least let it be for my
mistake
and not my peers.
A few years later, a very well known economist and central banker
requested a meeting. I was in awe of his reputation and was
surprised
that he even knew who I was. He came to my office and spent the
day.
He pulled out his charts of economic movement since World War ll
upon which he had plotted the course of short-term versus long-term
interest rates. He then explained that every time short exceeded
long, a
recession soon followed. By now I was more relaxed and had slipped
into an intellectual mode where I forgot about my junior status. I
pulled
out my charts on economic movement dating back to the 1700's on
short as well as long-term rates. I pointed out instances where
short-term rates rose but failed to exceed long-term and still a
recession followed. And as for the periods when short had exceeded
long, there was no definitive correlation insofar as time and price
were
concerned. Short had remained above long for several years, while
in
some cases it was but for only a few months. There was also a lack
of
uniformity within the differentials. At times, short-term rates had
risen
to 3 times that of long-term rates, while at other points in time
the
differential would be less than 5%.
The conversation continued and by the end of the day I had
converted
him to my theories quite unintentionally. The following day the
shock of
what had transpired finally hit me - I had held my own against
someone
who's reputation I could never hope to match. Yet had I been on a
panel
with this gentlemen, I would never have mustered the guts to launch
an
open challenge. Ironically, a decade and a half later I find myself
in the
reverse position at times when others are aware of my reputation
and
shy away from challenge".
"Throughout my many years of research into market activity, I have spent
a considerable
amount of time studying the commentary which coincided with major trends
in a given
market. I might be one of the few who has read the vast majority of the
New York Times,
Wall Street Journal, London Financial Times, and several other
publications, from either their
inception or at least from the early 1800s until the present.
Throughout the Greatest Bull Market In History, I felt strongly that the
reader should be
given the same commentary verbatim which I myself read. Besides the
hindsight
interpretations of those who attempted to explain the bull market of the
Roaring '20s and the
crash thereafter, a great deal of knowledge had seemed to slip away. It
is always easy to
reflect back and say; "Well the market went up because of that or it
went down because of
this." But the more important aspect is always overlooked in both cases.
Hindsight only
exists after the fact, never before! So if you want to truly get at the
causes and effects, you
must look into the thoughts, dreams, aspirations and interpretations of
those who were
involved DURING such conclusive events.
When the research for the Greatest Bull Market In History was concluded,
several
interesting items in fundamental analysis had jumped out of the
commentary from the various
magazines and general newspapers of the day. The analysis of those
during the events were
something totally different from the recants of those who had looked
back trying to blame a
specific group to vindicate either themselves or to purport a specific
predetermined political
philosophy. Perhaps the most startling piece of historical insight which
this research brought
forth, was the fact that the press and the "professional" traders had
remained BEARISH until
1928! Only toward the very end, did everyone suddenly begin to accept
the notion that the
stock market was in fact going higher. What then about the previous 7
years when the
market generally trended higher? Each new high was interpreted as if it
were almost, if not
THE final high for the move.
If we look back at the commentary in Barron's, for example, during 1982,
you will be hard
pressed to find an analyst who remained bullish on the stock market.
Surely few would even
think of 2500 just five years in the future. Many remained convinced
that depression was
going to become a fact of life.
These things tend to illustrate that natural human instinct within us
all which leans toward
doubt before we are convinced. This subject can be expanded upon in
great detail perhaps
deserving of a book in itself. But it is this very same instinct within
us all which offers perhaps
our most formidable adversary when trying to survive our own trading
decisions.
Whenever we lose money in an investment or in trading a market from a
leveraged position,
we may find ourselves placing the blame on someone other than ourselves.
In most cases,
we honestly have no one to blame but ourselves".
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