Tuesday, August 19, 2008

Don't Panic

9 Tips for Dangerous Times

First, panic! No, just kidding. First, don't panic.

So, again, don't panic.

Do not panic if your overseas investments tank for a time.

Eighth. Panic. Oops. I did it again. Nope, don't panic.

Then, panic! Ooops. I did it again.

Wow, that's a lot of "don't panic" advice. It reminds me of the bad advice he offered last year (which oddly enough was given the very same day I started this blog: August 31, 2007). Using hindsight, that would have been a great time to panic. The DJIA closed at 13,357. I should state for the record that I am very indifferent to the price of the stock market at its current levels though. I tend to think it may merely stagnate from here, much like it did throughout the 1970s. Here's why I might be tempted to panic this year though. There are still huge risks and the following is one of the biggest risks of all.

Fourth, try your best to develop modest habits of life. There is no vice more painful that luxurious habits, says an old Chinese saying, and it's totally true. If you can accustom yourself to modest living, you are far ahead of your neighbors and you are investing in your peace of mind.

Imagine what the economy would do if we all took that advice. Picture the malls and restaurants in particular. It also might be worth picturing the government's response. I strongly suspect that tax rebate checks would be the new norm. I doubt deflation will be tolerated by a government and society so deeply in debt. Using a monetary printing press to solve that problem is not going to create more prosperity though. No amount of freshly printed money is going to get me to eat out more. In fact, the more that is sent to me the more likely I'll be hoarding hard goods even more than I already am. That is the ultimate economy killer.

Prisoner's dilemma

In the classic form of this game, cooperating is strictly dominated by defecting, so that the only possible equilibrium for the game is for all players to defect. In simpler terms, no matter what the other player does, one player will always gain a greater payoff by playing defect. Since in any situation playing defect is more beneficial than cooperating, all rational players will play defect, all things being equal.

The last thing the economy needs to see is everyone playing defect. That being said, I have defected. Shame on me perhaps. I live very modestly these days and it is a permanent change in my behavior. It is better for me individually but it is not better for us as a whole. Unfortunately, it seems much of our service economy needs consumers being serviced. Go figure.

You can discover what your enemy fears most by observing the means he uses to frighten you. - Eric Hoffer

Ben Stein isn't my enemy but it is fairly obvious what he fears most. It is a five letter word that stars with a p. That being said, I'm not going to tell you to panic. The saying goes that if you must panic, panic early. It would be hard to argue that we are in the early stages. It might already be too late to panic. Who knows? Heaven help us if it isn't too late to panic though. That would imply there's a lot more pain to come. I would certainly not rule it out. It isn't like I've shut this blog down based on my newfound optimism anyway. The same factors that prompted me to start this blog are all still in play, and as Paul Volcker said in 2005, circumstances are "dangerous and intractable." Three years later we're now told how to prepare for "dangerous times." Isn't that just par for the course?

And lastly, I can't imagine a worse time for contrarians. The public is finally starting to notice something is wrong. Is it "safe" to bet against them though? The public also believes that the sky is blue. The herd isn't always wrong. Like it or not, we are ALL part of the herd.

Fight-or-flight response

Although the emergency measure of the stress response is undoubtedly both vital and valuable, it can also be disruptive and damaging.

Isn't that the truth. I've been fleeing since 2004. It may not be financially draining (yet), but it certainly is emotionally draining to say the very least. Further, since there is no safe store of value in a welfare state (Greenspan's comments from 1966) I might just be fleeing the frying pan only to end up ultimately in the fire.


Anonymous said...



Ben Stein jumped the shark a long time ago. The phrase "jumping the shark" is from the 1970s. Coincidence?

Your post from 9/2007 pointing out that Ben Stein was hedging his optimism was very insightful.

Ben still has too much hope though. That pretty much guarantees he will be a bagholder. Serves him right for being so cavalier about risk. Ben should talk to people who invested in the stock market in 1881, 1929 or 1966 about the long run. IMO, Ben's optimism has been super(ir)rational.

That prisoners dilema fits well with stock market booms & busts. How are bear markets achieved?Maybe mass super rationality turns to mass super-irrationalilty.

Its a process. Variable change.

Stagflationary Mark said...


Ben should talk to people who invested in the stock market in 1881, 1929 or 1966 about the long run.

1966 is certainly worth a mention.

From your link...

The first public use[4] of the phrase as a direct metaphor is reported to have been on December 24, 1997, when the jumptheshark.com website was launched by Jon Hein.

For those interested in the long term, that would have been a decent time to "jump" out of stocks. The DJIA was 7660. Nearly 11 years later it is 11,348. That's roughly 3.8% per year. Perhaps 1966 restarted in 1997/1998.


Say, look at that. 1998 is also when oil prices bottomed. Go figure. Theory has it that you need a certain amount of fuel to jump the sharks. If you don't have enough, well...

Of course, some would argue oil prices are down. I guess that all depends on how you look at it. As seen in the link above, crude oil averaged $64.20 in 2007. I find it hard to cheer based on current oil prices of $115. Maybe that's just me though.