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I couldn't agree more. I have often tried to argue (invainly) that what we have gone through in the last 2/3 years was a credit recession. Most probablly in 2012, we will face an economic recession. The two being distinctly different from one another.....
Just in case, are you aware of the works by Dr Natasha Campbell-McBride? Very much follows this line of thinking
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Heart-felt condolenzes to you and tour family Leonardo
Kind of reminds me of those who waist their time and energy preparing for an event, usually for the worst. Perhaps we should focus on we can react post an event as opposed to planning before, only to not have the character to act. I always find your posts engaging Kent, Many thanks, Leonardo
Whilst I agree with everything you say, there is one aspect that seems to be often overlooked by market participants. The price action itself. I believe this is a form of analysis, long discarded, that in my view says more about the emotional state of a market than any fundamental or technical analysis can. Irrational behaviour can last a moment, possibly a day or two and will subsequently reversed. A rout that lasts 3 weeks (4 if we take the top of the week of 07/18) has deeper roots. As always, history will tell us why. There are instances when deep corrections were subsequently reversed fairly quickly. The crash of '87 or '98 spring to mind. But in both instances, there was a catalyst for the reversals. Similar bullets have been used more than once since 2009 with little 'real' economic impact. Does anyone seriously believe that QE3 will do the trick? Too many events around the world, and i'm talking economic events (which differe from area to area) not to mention social ones seem to be aligning to create the perfect storm. If we're lucky, the changes will be gradual but the Pied Piper will eventually need to be paid. How long can we postpone?
Great post! Alas we are morphing into a society where the widely held belief is that an internal lack can be fixed by an external means. Leonardo
"...Regardless of one's religious faith, or more specifically, regardless of the level of one's intellectual brilliance, we all limit our potential as individuals if we stop at the bounds of our own rationality." Therein lies the problem. I believe it was Daniel Boorstin who stated it best when he said "The greatest obstacle to discovery is not ignorance. It is the illusion of knowledge" Great stuff as always Kent
Great post Kent. Perhaps the real problem is not with pattern recognition per se but human emotions that can blind one's path. Patterns (maybe rhythms is a more appropriate term) do exist. They are ubiquitous throughout nature, hardwired into our systems for survival. We are part and parcel of a complex system and consequently fractal properties abound all around us, including in financial markets. It is a natural consequence to want to identify these patterns. However the term, as it's used in finance, has become quite perverse. In reality, we are unable to know in which part of the fractal we may find ourselves. Consequently, spotting a similar precedent does not preclude that it will result in a similar outcome. And as you say, the decision that one has to take is solely one of probabilities. The problem with pattern recognition is not so much the patterns but what I call the evils of human decision process; The gambler's fallacy (as you mentioned), confirmatory biases and recency bias. There are more of course but these, in my opinion, are the worst.... Thanks, Leonardo
If the overbought statement made by McHugh is referenced at the Macd level (as opposed to the spx being overbought) then he has no clue as to what he's talking about and shouldn't be listened to. That said, he's likely to be right from the wrong reasons. A very common occurrence displayed by market participants
Toggle Commented Nov 11, 2009 on Lotta Noise, No Point at Planet Yelnick