John Hussman: The Market Is Not in Uncharted Territory 32 comments
John Hussman
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Excerpt from the Hussman Funds' Weekly Market Comment (11/17/08):
If we seriously need to talk about the Great Depression (I personally believe that it is an outrageously dire comparison), we should recognize that even during that prolonged decline, it rarely made sense to sell into a major break of a previous low, because investors invariably had a chance to sell on a later recovery to the prior level of support. Below is a chart of the Dow Jones Industrial Average during the Depression. Even if one hung on after the enormous rally of nearly 50% that followed the initial 1929 low, the market's initial break of that low (the first horizontal bar) was followed several months later by a rebound to that prior level of support. The break of the second intermediate low of early 1931 (the second horizontal bar) was followed by a rebound later in the year to that same level. Third break, same story.
It is a typical market dynamic to have massive rallies toward prior levels of support, even within ongoing market declines. Once valuations are favorable, that tendency is even stronger, even in a weakening economy. Only the final panic decline of a bear market offers investors virtually no chance to get out on rebounds, but it is precisely that final decline that is recovered almost immediately in the subsequent bull market.
...
Even if the U.S. economy experiences a much deeper recession, I believe that the 1000-1100 level on the S&P represents a reasonable estimate of “fair value” for the S&P 500. That estimate is somewhat conservative since I am adjusting for the fact that earnings in recent years have been based on very wide profit margins, but could be too conservative given that long-term interest rates are very low. Long-duration instruments like stocks should not be priced off of short-duration instruments like 10-year Treasury bonds, or even 30-year Treasuries, so low interest rates shouldn't make investors recklessly optimistic about their valuation estimates. In any event, I do believe that current levels represent value from the standpoint of long-term investment prospects.
As for extreme and less likely benchmarks, the 780 level on the S&P 500 would represent a 50% loss from the market's peak, and would put the market in the lowest 20% of all historical valuations. I would expect heavy demand from value-conscious investors about that level if the market was to decline further, and a decline below that level could be expected to reverse back toward 780 fairly quickly. Further down, but very unlikely at this point from my perspective, the 700 level on the S&P 500 would represent the lowest 10% of historical valuations, 625 would put the market in the lowest 5% of valuations, and anywhere at 600 or below would put the market in the lowest 1% of historical valuations. I don't expect to see such a level, but there it is. Note that these estimates are unaffected by how low earnings might go next quarter or next year. Stocks are not a claim on next quarter's or next year's earnings – they are a claim on an indefinite stream of future cash flows.
Recent market conditions seem like they have no precedent only because so many investment professionals know only the data they've lived through. If one actually examines market data from the Great Depression, 1907, and other less extreme panics, one realizes how much the recent decline has already discounted potential economic negatives. At this point, further declines in stock prices simply increase the long-term returns that investors can expect over time. We can't rule out the possibility that investors could get more frightened, or that they might abandon their stocks at prices that would offer extremely high long-term returns to the buyers. It is important to establish exposure slowly, but long-term investors who ignore attractive valuations are not investors at all.
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This article has 32 comments:
Welcome to the real world folks..I remember the 45% decline in the early 70s. Thats a real bear market, and its a lesson todays investors need to learn.
Dow Jones has extremely high probability of finalyzing the 100-year chart into an expanding flat with 4750 target using Elliott Wave analysis. Expanding flats are very common patterns you can see on intraday as well as daily or weekly charts. MER is an expanding flat on the quarterly or yearly chart with $9 target. MER is already in the advanced stage while Dow Jones is half-way thru.
However, looking at the century chart of Dow Jones; there is also a 50% probability that the expanding flat C wave will over-extend into the 700-1000 range of the 1965 to 1980 range where the Dow kept on failing to break the 1000 ceiling for 15 years.
If Dow ever gets into that range and stays there for several months; it will be catastropic that is going to destroy not only everybody's wealth but confidence of the future.
Only a massive rally after 4750 or 700-1000 whichever bottom happens will the stock market be able to restore confidence.
Without a searingly hot rally that will be able to recover Dow Jones 14,200 level of Oct 2007 within 5 years from bottoming; there will be a prolonged market consolidation that will double or triple the amount of time that has been consumed so far in order to repair the numerous damages inflicted by the destruction of wealth.
Remember, the plunge of 1929 to 1932 correction was able to produce more than 10 years of depression.
One look at SnP500 double top pattern on the yearly chart shows that we are already going into a correction process for almost 8 years starting year 2000. Expected bottom is H2 2009.
How many years of economic depression will a stock market correction that has been going on for 9 years be able to inflict into the economy?
There are a lot more Americans who are directly and indirectly affected financially by the stock markets today than there were in 1932.
Likewise, stock markets of the 1932 was a lot less global in nature. Now, we have stock markets and their corresponding economies that will inflict damage to the US with US likewise inflicting damage to other countries in significant ways.
Even China, Russia and Brazil which were considered immune to market downturns are now economically suffering due to the severe impact of the US and European downturns.
His strategy of holding high quality stocks, combined with hedging against market revaluation using SPX Put options has paid off handsomely this year, making his fund one of the most successful in the industry. This is even more impressive considering it has lower risk than the market.
If this is truly the end of the world, your stock portfolio is the last thing you need to worry about.
dshort.com/charts/Dow-...
Here's a monthly chart over the same timeframe with some 10MA signals:
dshort.com/charts/Dow-...
This monthly MA strategy is not suitable for long-term sideways markets (and it certainly won't be of interest to a mutual fund manager). But it has worked reasonably well since the mid 1990s. It would have saved a lot of pain in 1929-1932, and it would have moved your to fixed income in November of last year.
You can also argue that you can sell on the lows only to wait some time longer to buy stock back at far lower levels and wait for another low trigger in order to sell.
And after that waiting a long time to buy stuff back far more cheaply...
But living day to day we do not know if we are at a bottom... We do not have fancy 1929 charts, all we know stuff is declining.
Come on face the facts and abandon all this fancy technical analysis:
For the first time in history the S&P 500 is negative on a 10 year scale, it has never ever happened before that an investment in the S&P 500 was negative.
Beside being negative, you have a full fist of inflation in your face so in fact it is far worse than 'only being negative on a 10 year scale'.
I don't know what a full decade of the last inflation was but we can safely conlude that 100 US$ invested a decade ago in the S&P 500 is now below 70$... (in 1998 US$ of course).
finance.yahoo.com/echa...=^gspc;range=19981117,...
So fill in the date (17 Nov 1998) for yourself in the box at the right lower bottom of the Yahoo S&P chart...
Then aarc says: "Dow Jones has extremely high probability of finalyzing the 100-year chart into an expanding flat with 4750 target using Elliott Wave analysis."
HUH? If technical analysis doesn't apply, then why are you applying it????????? Ridiculous.
Considering the season and the fact we have not seen a decent rally, even a bear market rally, in some time, I would suspect that the indexes would at least rise and test their respective 50 day moving averages for a tradeable rally.
Both of the scripts being run by the Google Corporation on Seeking Alpha have been flags as unsafe by my computer security software.
There is another script that is also being run by Seeking Alpha from nuconomy.com that is flagged by security protection software as a privacy concern. Now I have to use a computer at an Internet cafe to post on their computers. Crazy!
Is Seeking Alpha now violating privacy of posters, or reporting back to Paulson, Pelosi and Frank who is posting what against them? LOL!
In any case... The stocks will continue to fall and fall until they have lost maybe 75-80 percent of what they were worth in 2007. And, to directly attack your position, the markets have NEVER been in this position before. Never, in the history of our country, or the world, have economies been so complex and interdependent on one another. It will be a catastrophic disaster when this sucker goes down.
Take a step back, away from your numbers and data to look at the game (I'm big on game theory). What do you have?
1. Consumer countries (USA Number One).
2. Manufacturing Countries
3. Raw material (resources) and agricultural countries.
In this game, how do you think it will play out every time? If you guessed the consumer country will falter, fall into debt and collapse, you'd be correct.
Then we had this twist on the game:
The United States actually figured out a way to take the debt we owed countries and then convinced them that it would be a great future investment. Countries like Japan and China bought it! LOL! I don't think they'll be that stupid in the next round...
You'll know that you've reached bottom when there is gunfire in the streets and the talking heads are committing suicide after being surrounded by angry mobs. I think the leaders of the public and private sectors are getting ready to be in a situation where the country and world will be like New Orleans after Katrina, but nobody is going to be there to help. Their security details, as I'm sure they've been told, will be useless or abandon them.
This sucker's going down. I give it three to six months.
Your comments regarding the futility of TA are amusing. "And did any squiggle-people predict the current bear market?" Yes, many did. But most of them wouldn't bother telling you about it. Unfortunately, you still think you understand what technical analysis is by reading about it from a Wikipedia page while eating a sandwich. It takes time to learn the art behind the science; in time you'll see the charts in a completely different way. This is about as kind a message as I can proffer considering that I gain nothing by telling you this. If you must know, this year I "used the squiggles" to:
- short gold (DZZ) at $970/ounce;
- short Encana (ECA) at $92/share;
- buy SKF at $89/share (more than once);
- short Goldman (GS) at $137/share;
- short crude oil (HOD.TO) at $119/barrel;
- sell CAD against USD at parity;
- short SPY at 130.00/share (via SDS); and last but not least
- short BRK/B at $4390/share.
The list goes on. How many long-side trades do you see? I've only been doing this for 18 months and my measly initial couple of hundred grand bankroll isn't big enough to crack the billion mark yet; this and this alone is the reason that I'm writing you--I'm still in the market. My 135% year to date return, however, suits me just fine. Doubt me? Send me your postal address and I'll fedex you my trade tickets. Take this advice: keep your toilet shut before discounting a method you know absolutely nothing about.
That's right. We are ALL TOAST.
Why do you think all of these people are buying ammunition and firearms? Becuase Obama will regulate weapons? No way. People are getting ready for what's going down.
I've traveled some in the past few weeks and every store I went to has empty shelves big time. Week, after week, the grocery and box stores have fewer and fewer items. Huge gaps in shelves for everything...
The last time I saw something like this was during the Cuba Missle Crisis, but it's interesting how the media is not reporting on the empty shelves at grocery stores. I've personally seen this in several Southern and Western cities I've visited... Empty shelves or a total lack of stocked items...
It is getting crazy. I've been asked by some neighbors if I wanted to join a community security group, since police will be worthless.
My take on all of this, icandoitdon, is that when this sucker goes down. We all ARE TOAST.
I think we're at the same level of nov'29 where it rebounded off 200, though now that level should be 800.
Prob have a rebound, especially with a new president, new policies, new hope (the audacity of hope), before fizzling out as we discover more and more bad debts - which will be coming from various sources not yet taken into estimates.
Its gonna be painful... - the repricing of risk, rising bankruptcies, increasing unemployment.
I hope not a depression again, but its gonna be tough!
You must be a multi-millionaire??
With your predictions you must have been & are still invested 100%
in the double bear ETF's.
Congrats on your 8 good trades and your high YTD return.
Why do you think that any of this has something to do with TA?
I don't know what your exact method is, but most TA methods I'm familiar with are an attempt at pattern recognition. Human brain is very good at confirmation bias. If you already believed that gold was "expensive" your TA would always confirm it.
Do you believe that you can establish cause and effect based on 8 trades? Have you closed all of them yet? My guess is no, since you are still in the market.
You seem to believe that making these kinds of returns is easy.
I guess if it's so easy you have probably already quit your day job.
I guess it must be easy for you but impossible for the rest. What makes you so special? I know we are all special, but seriously?
Good luck climbing the easy money mountain!
On Nov 17 07:26 PM Jase wrote:
> chrisb,
>
> Your comments regarding the futility of TA are amusing. "And did
> any squiggle-people predict the current bear market?" Yes, many
> did. But most of them wouldn't bother telling you about it. Unfortunately,
> you still think you understand what technical analysis is by reading
> about it from a Wikipedia page while eating a sandwich. It takes
> time to learn the art behind the science; in time you'll see the
> charts in a completely different way. This is about as kind a message
> as I can proffer considering that I gain nothing by telling you this.
> If you must know, this year I "used the squiggles" to:
>
> - short gold (DZZ) at $970/ounce;
> - short Encana (ECA) at $92/share;
> - buy SKF at $89/share (more than once);
> - short Goldman (GS) at $137/share;
> - short crude oil (HOD.TO) at $119/barrel;
> - sell CAD against USD at parity;
> - short SPY at 130.00/share (via SDS); and last but not least
> - short BRK/B at $4390/share.
>
> The list goes on. How many long-side trades do you see? I've only
> been doing this for 18 months and my measly initial couple of hundred
> grand bankroll isn't big enough to crack the billion mark yet; this
> and this alone is the reason that I'm writing you--I'm still in the
> market. My 135% year to date return, however, suits me just fine.
> Doubt me? Send me your postal address and I'll fedex you my trade
> tickets. Take this advice: keep your toilet shut before discounting
> a method you know absolutely nothing about.
>
Cyclingscholar - If you do the math on DOW 14K to 8K, I believe that's in the neighborhood of 40% or so. Comparable to the '70's saga you brought up.
Speaking of the 1970's, we're in for a real round of inflation, and it's going to get ugly. Debt will be worth-less, assets will surge, get ready.
Future sales and earnings are the usual reasons, right? And, considering that dividends are becoming more rare these days, price appreciation of stock is the only return an investor receives on what is typically the riskiest of all investments. I don't remember seeing spectacular sales or earnings results from any sector other than financials or commodities recently.
Buy and hold if you must but be prepared to go really long. And, if the inflationistas are correct, you're never going to realize a true ROI - not in this lifetime anyway.
If one desired, you could find some fairly good buy and sell signals with just a 40 week moving average, and a Relative Strength chart comparing a particular issue to the broader indexes. That right there would have put you in cash, or suggested short positions at the right times this year.
You do have to be pretty special to be a chartist/TA trader. You have to have some discipline and commitment, which is actually pretty rare to come by these days.
On Nov 17 08:30 PM Vladimir Senkov wrote:
> Jase,
>
> Congrats on your 8 good trades and your high YTD return.
> Why do you think that any of this has something to do with TA?<br/>I
> don't know what your exact method is, but most TA methods I'm familiar
> with are an attempt at pattern recognition. Human brain is very good
> at confirmation bias. If you already believed that gold was "expensive"
> your TA would always confirm it.
> Do you believe that you can establish cause and effect based on 8
> trades? Have you closed all of them yet? My guess is no, since you
> are still in the market.
> You seem to believe that making these kinds of returns is easy.<br/>I
> guess if it's so easy you have probably already quit your day job.
>
> I guess it must be easy for you but impossible for the rest. What
> makes you so special? I know we are all special, but seriously?<br/>
>
> Good luck climbing the easy money mountain!
>
> On Nov 17 07:26 PM Jase wrote:
I don't believe charts from the 1920's, 30's or even 70's are that useful.
It's difficult to respond to your post as your initial comments are "I don't know what your exact method is, but..." then the remainder of your diatribe goes on to challenge what you imagine my method to be.
What shall I comment on--the actual methods that I use or the words that you've put in my mouth?
When you elect to pelt me with comments like: "You seem to believe that making these kinds of returns is easy" and "Do you believe that you can establish cause and effect based on 8 trades?" and "I guess it must be easy for you but impossible for the rest", it suggests to me that you're having a conversation with yourself, not me.
Here's the spill:
1. The eight trades that I listed weren't the only trades that I've made this year, there were many more trades, and many, many were losers. Each losing trade, however, incurred a maximum loss of 6% on only a partial initial position size. In other words, if I intend to commit a total of $100,000 to a position, I will never lose more than $1800 plus commissions. No exceptions. I add to all successful positions using very strict guidelines and I'm not afraid of taking partial profits.
2. Yes, I do this full-time. I lost $30M earlier this year when the financing for my software company fell through (investment bank went tits up due to subprime exposure, among other things). The capital that I use to trade is all that I have left in this world--so I take trading very, very seriously.
3. I don't care about profits. All I care about is managing risk.
4. I have patience. More than 70% of my gains are realized in the last 20% of the time that I hold my positions. I'm still working at mastering the skill of sitting still; this is really, really hard. That said, I've been taking profits much more quickly during October and November. I'm sitting in a relatively high % cash right now.
5. Yes, I'm still in the market. Of the eight trades that I've mentioned, I'm still holding the BRK/B short, still holding USD against CAD, and I'm still short crude oil... there are a few others.
In your comments, you used the word "believe" several times. I don't trade what I believe. Frankly, the market doesn't give a shit what I think. I only trade what's right there in front of me, what I'm seeing occur. If a trade isn't going my way and I'm stopped out (100% of my trades have stops in place, no exceptions), all it means is that I was wrong. That's it, I was wrong. So what? I try to let it go like a bad first serve in tennis, my second serve doesn't have to be affected by my poor first serve--unless I choose to let it adversely affect me. Hopefully you get the idea.
I'm not going to comment on technical analysis here because my description of it won't make you understand it any more than you think you do now. As for being special, believe me, I'm not. I'm just interested in making some money and repaying my investors so that I can get back to my research in number theory.
Best of luck in your future trades.
On Nov 17 08:30 PM Vladimir Senkov wrote:
> Jase,
>
> Congrats on your 8 good trades and your high YTD return.
> Why do you think that any of this has something to do with TA?<br/>I
> don't know what your exact method is, but most TA methods I'm familiar
> with are an attempt at pattern recognition. Human brain is very good
> at confirmation bias. If you already believed that gold was "expensive"
> your TA would always confirm it.
> Do you believe that you can establish cause and effect based on 8
> trades? Have you closed all of them yet? My guess is no, since you
> are still in the market.
> You seem to believe that making these kinds of returns is easy.<br/>I
> guess if it's so easy you have probably already quit your day job.
>
> I guess it must be easy for you but impossible for the rest. What
> makes you so special? I know we are all special, but seriously?<br/>
>
> Good luck climbing the easy money mountain!
>
> On Nov 17 07:26 PM Jase wrote:
If you believe in evolution then the chicken hatched from the "pre-chicken” (or whatever you want to call the animal/thing that precedes chickens in their evolutionary chain) egg: so the chicken comes out of an egg, but the egg is not that of a chicken, the animal that does hatch from said egg is however the first chicken to set foot on earth. The question then isn't whether the egg came first or the chicken; the question should be whether the egg is named/labeled/called after the thing/animal that it comes out of or the thing/animal that comes out of it!
To relate this to your analogy which you phrase as -- <i> does the consumer create a stock market or does the stock market create the consumer </i>... The answer must necessarily be that there is a completely different Wittgensteinian relationship between these two organisms (the stock market and the consumer) than that of how we name the first egg from which a chicken hatched.
First of all, if your analogy held any truthful comparison whatsoever then said "stock market" would be called a "consumer market" and then the question would follow: which came first, the consumer or the market for consumers to shop in?(and the answer would necessarily be that they each create one another, or stated differently that each emerges in conjunction with the other not independently thereof). Now I think I understand the point you are trying to make; that the actual consumers of stocks, referred to by various names such as Investors, day traders, and numerous other compendiums thereof (pension funds, mutual funds, hedge funds etc.) are allegedly purchasing future streams of theoretically indefinite earnings which are in fact supposed to be based on the <i> real economy's consumer's </i> ability to fund earnings through their purchases from the companies which float shares or, as they are arcanely called, stocks of their equity.
So what you have done is unfortunately confuse two things that we refer to by the same name; you have confused the consumer of real goods with the consumer of stocks and conflated them. This is not to say that they are not in any way related; they are. It is perfectly plausible to entertain the idea that one can be both a consumer of stocks and a consumer of real goods.
Though the point that I think you are trying to make is that the real economy comes first before the market emerges (for example people farm and grow food they need and sell the extras to neighbors who may need corn in exchange for some other item that the farmer needs, perhaps a new plow that the neighbor who is an iron smith has built) and is the basis or precursor for any market. The point being that markets only emerge when one has an excess of certain goods they are willing to trade with from within the real economy of survival. And that the first priority of this crisis shouldn't be to save the market but to help save the people who are supposed to be the basis of the market in their ability to create things that people in the market will need. This is commonly referred to as supply and demand.
The problem we face today is that our money which is based on not much more than faith, in much the same way as religion is based on ones belief in one god or various others, is something we have all been hypnotized into believing has the value to purchase the things we need to prolong our survival and beyond survival our enjoyment of said survival. And in much the same way that god truly does exist for those who together conjure and reaffirm to one another as a group that it does exist, we have as well conferred a real value upon our <i>currency</... as a world community. In America, as the value of our agreed upon meme of exchange continued to inflate in value (i.e. the value of those things viewed as necessary for survival (bigger houses, more cars, fancy luxury goods that confer <i>status</i&... (a highly valued commodity in and of itself within our culture) increased in relation to those pieces of paper which became less and less valued as banks where more and more willing to sell them with less and less worry about the possibility of not getting them back at all for the chance at getting them back in the future… plus a little somethin’ somethin’ we call interest.)
In large part a lot of this "inflation" in the cost of money was due to the idea of credit, which in and of itself can really be a very beneficial belief for society as a whole to accept and utilized. But, in much the same way that other concepts such as god, fluoride in water, chlorine in water, steroids, and pain killers which in certain doses can be very advantageous to our survival in moderate doses, they can in fact as well be quite lethal in larger doses which have not been properly administered, facilitated or yet experimented with (unfortunately society is it’s own researcher and lab rat at the same time).
Credit when properly used and distributed has different characteristics based on the length of time for which it is granted. As a society we inherently believe we have less and less understanding and knowledge of the future the further out we try to <i>see</i>... In truth it is virtually impossible for us to <i> know</i> what will happen from one second to the next, but we humans fancy ourselves as very good guessers and story tellers and in fact have quite a good track record of fortune telling (based on survivorship bias of course), though that clearly should not be considered as a basis for future predictions as is clearly stated in any financial prospectus. It is as well the case that credit that is granted further into the future besides usually requiring a “higher rate of return” is also usually of a larger magnitude than credit granted into only the near future (this is not always the case and can in fact be switched dramatically when desperation runs high and immediate survival outweighs the burden of any future debt whatsoever: this is in some ways the situation our economy faces today)
Please follow me shortly for an apriori Socratic thought adventure involving a caveman. The cave man has found the tracks of what he believes to be a deer. He has seen a deer in the past and has noticed that deer leave marks on the ground and he now believes that when he sees these marks a deer has been in the place where he sees said marks which we shall from here on in call hoof prints. He has in the past been able to throw a spear at a deer, kill it, and then eat it. Now unfortunately, due to a recent accident, the caveman has lost his spear. He can make a new one but he knows that will take <i>time</i>... and because of his previous encounters, experiences and beliefs about deer he believes that when the deer shit near the hoof prints is warm it means that the dear is still nearby. The caveman has a friend who is close by and this friend has only one spear which he is using to try and catch the very same dear of which he has the same beliefs with regard to its proximity. He has another friend who has an extra spear but who is also trying to catch the same dear. Now there are many possibilities in this situation. The cave man can ask his friends to borrow a spear, but what motivation do they have to lend him a spear? (the typical notions of friendship should be left aside for now) The first friend with only one spear is less likely to lend his spear because he needs it for his own survival, what would he have to do if he lends the spear and doesn’t get it back? How much food does the first friend have left to survive on? Perhaps the caveman who needs to borrow the spear is said, and agreed upon by all the other cavemen, to be a much better spear thrower than anyone else. Perhaps our caveman who needs to borrow the spear has a whole arsenal of spears, but unfortunately they are a day away and he simply doesn’t have access to them now but you know that he could easily return to the first friend with only one spear another spear in only two days (and perhaps a gift for friend for having been so kind to lend him his only spear, so that he might be inclined to do him the favor again in the future should the need arise). Perhaps the friend who has an extra spear on hand will be more willing to lend a spear to our un-speared caveman because he has one to spare. Perhaps the un-speared caveman knows of the deer tracks and poop but the others don’t yet know. Or, perhaps, they are all going to go out hunting together because they believe that as a team they have a better chance of catching the dear and getting to eat it than if they each go alone and try and catch it before one another. The questions I am getting at are fairly obvious: how much is the spear worth to each of these men? How if at all is the spear of a variable or static value to each? And how do, or ought, the different scenarios such as the ones pondered above impact the value of an individual spear to each of the men?
Our society is a complex and magnified version of the above caveman situation, with an infinite number of possible scenarios for how things are to be viewed and acted upon for our individual or collective survival and <i>evaluation<... (individual or collective is in itself constituting a viewpoint on how we as a species <i>should</i&... be viewed). The question of credit differs in each of the situations above. What does the caveman with one spear weigh as having the most value for his survival? Is it being able to sit down and smoke a pipe while his friend who has borrowed his only spear promises to bring him back a deer leg in exchange for his spear for 2 days, or does he want a whole half a deer? How much of the deer is the caveman who is going hunting willing to offer (should he catch it) to borrow the spear? What if the friend who is borrowing the spear doesn’t find the deer, does the caveman lending the spear already have so much deer meat that it doesn’t really matter to him? Or, is he on the verge of starvation and really doesn’t trust his friend to catch the deer or bring back his spear. Perhaps he thinks his friend is just a thief who has come to steal his spear and has told him nothing but lies. Or maybe the friend with a two spears really only has one spear but he’s a hypnotist and is able to make almost everyone who comes into his hut think he a second spear when in fact he has simply hypnotized them into thinking his broom is a spear (this is probably the point where you will begin to question seriously my sanity and where I am trying to go with this imaginative sphere of possibilities, I don’t blame you I do too, and I have gotten a bit ahead of myself in order to echo what I believe is happening today).
Now let us imagine that there is a spear maker, who we’ll call Sam, who makes the very best spears. His spears have not only a lifetime guarantee to always work but are guaranteed to work forever and always be the best way to put food on the table! It is the case that this persuasive caveman named Sam is indeed the best spear maker around. Sam’s spears were generally agreed by all to be the very best spears in the world. Everyone agrees upon the value of having these spears and people who are able to collect as many as possible. They are highly valued and subsequently because of everyone’s agreement about the utility of these amazing spears easily traded for things that one may need or want. They have a infinite guarantee and no one doubts that the spear maker will ever break his guarantee or that there will ever be a better way of not only putting food on the table but getting the things that make life even <i>better</i&... than simply surviving.
Now by this time the great Sam had fostered the development of quite a big industry. People all over the place weren’t even hunting with the spears anymore; they were keeping them in warehouses and coming up with new and better ways to utilize their agreed upon intrinsic value in being able to kill a deer and put food on the table to survive. People no longer really had to use the spears because they had learned and devised new and better ways of getting food.
This whole warehousing of spears and utilizing them in better ways all started when someone, who we’ll call Bob, took some spears that he had earned and some that he borrowed (as he convinced someone, who we’ll call Patricia, of the brilliance of his idea and they agreed that he could really make them all much better off if Patricia lent him some of her spears of which she had extra to lend) and built a fence out of the spears. Bob was able to capture and train dogs to help him round up deer without killing them (all he had to do was trade a couple of spears for some food for the dogs and they worked for free!) and keep them inside his fence. The deer would mate and make more deer and it made it much easier to kill them and eat them without having to go chasing them all time, it was a real <i> time saver </i>.
Bob was able to do this because the amount of spears needed to make and maintain the fence, keep the dogs alive and breed more and more deer was fewer than the amount of spears needed to kill the deer the old fashioned way. Bob was able to trade more than enough deer meat for spears in order to get back the spears he used up to make the fence as well as pay back the spears he borrowed. Since Bob was very thankful of Patricia for lending him the spears to become so successful a deer breeder and killer, (by being able to kill more deer in less time than anyone else through the use of his fence and breed process) he was much obliged and very thankful for his intelligent friends ability to understand his vision, believe in his idea and willingness to help make his spear saving process a reality (as well as sacrifice lending out her extra spears to others who were willing give her half of the deer they caught with her spear per day). In order to show his benefactor gratitude Bob lavished upon Patricia many spears in excess of the original amount borrowed (an amount far greater than she would have been able to buy had she lent the spears to the individual hunters willing to split their catch with her). And together, they both became well respected by their fellow cave men for their ingenuity and combined ability. Their contribution to the value of lives of many others than themselves was evidenced by their abundant collection of spears which was now much larger than before Patricia made the wise decision to lend her excess spears to Bob who had the idea that would “save time” by producing more deer meat using less spears than ever before. With this “saved time” people were now able to do things other than hunt the old fashioned way.
Bob was so good at getting deer meat that he was able to buy far more spears from Sam (who accepted deer meat in exchange for spears) than anyone else who was still hunting the old fashioned way. In fact he was so effective with his new method of getting deer meat that while in the past people had only been willing to trade one dear per spear he was willing to trade Sam 2 deer per spear. Lots of people wanted spears and Sam, since he was effectively the only acceptable spear maker had a long line of people who wanted them. But Sam was always willing to let Bob cut the line and get spears before anyone else for double the amount of deer, in fact, he soon began to expect everyone to trade 2 dears per spear. This had 2 effects: firstly it had the effect of making deer less valuable than they had been previously (because it took less spears and time to catch kill and eat it than the old fashioned way) and secondly it had the effect of making the spears more valuable in relation to deer than they had been previously because you could now get 2 deer in exchange for 1 spear.
Bob was able to <i>produce</i... more meat in less time using the same if not fewer amounts of spears than hunting the old fashioned way allowed. This meant that if the “intrinsic value” of a spear was measured by the quantity of meat produced per day, Bob had now shown that by using his process of turning spears into fences it was possible to get twice as much meat per day than hunting the old fashioned way. Spears became more valuable by providing more meat per day using the same quantity of spears. Or, viewed differently, spears became more valuable by providing the same amount of meat provided by using the old fashioned method of hunting in half the time using the same number of spears when utilizing the fence method. Some people took note of how Patricia had lent spears to Bob and how in return she was rewarded with even more spears than she had lent (and even more than if she had just lent them to individual hunters willing to split their catch). They realized that if you have some extra spears and you lend them to someone who seems to have a better way of using the spears for one thing or another, it is possible to increase the number of spears you have. They realized that it was all about <i>trading time</i> and in this world time was measured in spears and vice versa.
Sams has a very important role in our made up world. As the spear maker he provided the basis for the measurement of the value of time. At first, without the spears he made it took much, much, longer to get the very sustenance we needed to simply stay alive. As this basic store of value of the time you get for staying alive and not dying was attributed to the spear, the spear became a symbol of the thing you need most to stay alive. People relied on the spear and since everyone needed a spear they were always willing to trade things for spears. Soon people were able to show that the spear was even more valuable than once though because when used in a new and innovative way to make a fence and herd animals instead of just hunting them the same spear was shown to be twice as valuable in terms of meat or time saved. When Bob proved this, he not only made himself better off but he made Patricia better off for having helped him get off the ground with the initial spears he needed and he made Sam better off too because he was now was getting twice as many deer per spear. Or, looked at from the perspective of time, they each now have more of it to spend doing something other than hunting, or in Sam’s case he can if he chooses make half as many spears as he once had to in order to maintain his status quo of deer meat thereby saving him time to do something else. Everyone who is a holder and trader of Sam’s spears was enriched by Bobs innovative and time saving fence idea with the exception of anyone who continues to use the spears they own to hunt the old fashioned way. Now instead of being able to trade a single deer in exchange for a new Spear from Sam they need to in fact hunt for twice as long as they had previously. They are clearly much better off if they do something that takes them less time to produce than the hunting would take so that they can trade their product for a spear from Sam and in return trade the spear to Bob for the 2 deer. This saved time between the hunting they could have been doing and the product that they were able to create in less time but trade for the same spear is the way in which they have been innovative in saving time too. Everyone does seem to be compelled to be more innovative in saving time when a common store of how to value time is utilized.
Soon people were following Patricia’s example and pooling their extra spears. They tried to make smart decisions about who had good ideas for doing things in newer better ways, ideas that could save time, and make more things that people needed or were willing to trade even more spears for than they had lent. And there were people who had some good ideas too, who didn’t have all of the spears they needed to make their ideas become a reality. These people with some novel ideas for better utilizing the spears recognized the value they could offer and convinced themselves that if only they had enough spears they would be able to use them more effectively and subsequently be able to produce things worth more than the number of spears they would need to borrow. The people with the ideas were usually very willing to share in one way or other the additional benefit (measured in spears of course) that they believed their idea would make possible in just the same way that Bob did. The people with the ideas needed spears and the people with the extra spears needed the people with good ideas. It was often the case that the people with extra spears had at one time or another been the people with ideas themselves too and there was a great amount of camaraderie between these groups of people with ideas and people with extra spears and they both benefited and complimented one another greatly.
Slowly but surely people became so efficient at using the spears for things different from their original use that hardly anyone was using them for their original purpose! And the spears were seen more than anything else as a measurement of the value of time saved or from a different perspective as the value of time enjoyed while not working to save it. But the poor Sam was running out of energy trying to keep up with the demand for so many of his spears. People were now offering him more and more just to get their hands on spears because everyone wanted them in order to use them to trade them because everyone was willing to trade in spears made by Sam.
This process made Sam’s spears very valuable. By this point the people with the most extra spears had gathered into groups of likeminded people. They had been dealing with large amounts of spears for quite some time now and were even entrusted by people with not as many extra spears to hold onto theirs for them. They were seen as having great expertise at warehousing the extra spears and doing a top notch job of lending the spears to those people with good ideas who were able to come up with new ideas to save time or make things that other people were readily willing to trade in exchange for more spears than it took to put the idea into motion.
As the market for spears expanded, Sam began dealing only with the extra spear warehousers as it was much easier to deal with just a few entities and let them take care of dealing with everyone else who desired what had become the value measurement tool par excellence. The warehousers were providing a service of their own that was both valuable to the people who kept spears with them (by expertly choosing people with good ideas to lend to) and Sam who now only had to deal with the warehousers instead of everyone who thought they had a good idea and needed more spears than they had on hand (this saved him a lot of time). By this point they had made up a word for the difference between the value of the number of spears lent to someone and the number of spears they give back in return and gratuity for borrowing the spears they needed which they called “speards”. And most of this process was now written into contracts and agreed upon before the transactions took place.
The whole process of coming up with speards became pretty commonplace and codified. Different people and groups of people needing extra spears were offered different speards based upon different variables. The spear warehousers fancied themselves pretty darn good at determining what they thought to be fair speards. If they had dealt with someone before and they had a good experience working with them and lending them spears they may well be willing to request a lower speard of them in the future because they think they know they can trust them to repay the spears and the speards in the same responsible fashion they have in the past. Likewise people who need some extra spears were most often willing to go to the warehouses that were willing to lend them spears at the lowest speards.
The only thing anyone was willing to accept anymore in order to facilitate trade was spears and only spears; everyone trusted the value of a spear. However, spears were beginning to be viewed as a little clunky to transport around. They realized that if instead of using the spears themselves they just make out little pieces of paper that verify that you own the spear being held by the warehousers, then everyone will know that the value of that piece of paper is equal to the value of a spear that everyone knows and trusts. People began using the “spearos”; that’s what they called them. At first there was one spearo for each spear held in a warehouse.
They realized that the spears’ source of value had been completely transformed many times over from its original purpose which was to simply use it for hunting in order to provide sustenance to provide the time in order to continue that thing we call life. However, it was still a symbol and universally agreed by everyone who used it to represent things of value or time saved that could be utilized in ways other than mere survival. And it’s current and ever changing value was measured by its relation to how many time saving and innovative ideas measured themselves in comparison to this symbol because of its utilization as a trusted means for fair exchange. Everyone trusted that the price that Sam charged them per spear was the same as he charged everyone else because it wouldn’t make much sense for him to accept less than what each spear was really worth unless he was really in very dire straights and needed something he didn’t have really badly. As long as Sam made sure the spear could be trusted to be a fair reflection of the time saved value of a thing in relation to all other things the spear was reinforced over and over as a wonderful store of value. The transition to the spearo was no different. People had all come to trust the extra spear warehousers and Sam because they all believed that with the spearo reflecting accurately the value of all things everyone was benefiting from the innovation and time saving ideas that it’s efficient trade fostered. Only people confident in their ability to effectively produce something that could produce value or save time would be willing to take the risk of promising a speard in exchange for borrowing spearos and this would further be confirmed by the professional and astute decision made by the spear warehousers in lending spearos to one or another person or organization thereof. They had many years of experience and expertise in making these decisions in order to make sure that all of their depositors as well as their own interest in spears were most efficiently utilized to maximize the spears value and ability to save everyone who owned and traded in spears more time to enjoy life beyond survival. But Sam, who was just as wise as he was good at making spears, saw that his inability produce enough spears to fuel the rate at which people were coming up with new and innovative ideas was limiting some of the people with great ideas from making them a reality. Unfortunately Sam just couldn’t make enough spears fast enough to keep up with all of the good ideas. So Sam and the Warehousers got to thinking and came up with yet another great idea!
I got bored and lost my train of thought here and then gave up. I wanted to get into how credit and reserve fractional spearos could help expand the pool of spears without actually having to create new spears and then show how the system expands too much becomes corrupt as spearos are printed without having anything to back up their value falsely inflating the perceived value of things for a while until everyone realizes that the only reason things have become so expensive is really because there were more spearos being created and lent out with less chance of them being invested in time saving and innovative ideas and ultimately leading to a collapse in the belief that spearos are an effective store and measure of the time saving value added created by people and organizations that really can produce advantages. This leads ultimately to the deflation of real asset prices which have been priced in spearos (which have begun to lose value) along with the inflation of spearos in order to try and fill the gap in innovative and time saving ideas. Unfortunately due to the lack of money spent on fruitful research and stupid laws prohibiting potentially phenomenal scientific avenues due to the rise of religious fundagelicals coupled with investments in bombs that produce nothing but the destruction of wealth spearo creation was based on things that destroy not things that produce. The previous inflation that allowed for the corruption to pull the eyes over the majority of people in the first place because the people who lend the spearos, the warehousers, in an ever greater attempt to lend their devalued spearos give them away easier and easier without caring too much if they ever get them back since they have already fallen so much in value and since it costs them less and less to get them from Sam who people are still unsure how it could be possible for him to have lost his integrity when for all this time he had been so good at making the spears that backed up the spearos. The wizard is revealed and he’s not wearing any clothes. The end.
On Nov 17 04:30 PM iThinkBig wrote:
> The real problem is that it's only day traders left in the market.
> Big government collusions with NYC/Wall St. creates an encapsulation
> effect. If our economic system is dying it's common sense to ask
> the chicken and the egg question (does the consumer create a stock
> market or does the stock market create the consumer). When one answers
> that question honestly one comes to an easy conclusion of what must
> be done to restore our economy.
On Nov 17 04:30 PM iThinkBig wrote:
> The real problem is that it's only day traders left in the market.
> Big government collusions with NYC/Wall St. creates an encapsulation
> effect. If our economic system is dying it's common sense to ask
> the chicken and the egg question (does the consumer create a stock
> market or does the stock market create the consumer). When one answers
> that question honestly one comes to an easy conclusion of what must
> be done to restore our economy.
Listen, I'm having trouble with a math problem. Can you help me prove this: "Every even integer greater than 2 can be written as the sum of two primes."
Thanks
Use the Neti-Neti method. You may not be able to prove it positively but I can guarantee that if you challenge anyone to provide you with a single counterexample disproving it's truthiness they will not be able to do so. And if it is the case that someone can provide you with that one counterexample.... well then you've accomplished your goal in finding out what you set out to verify though unfortunately you will have proved Goldbach and Euler wrong.
You're Welcome
On Nov 18 06:52 PM Jase wrote:
> Roga,
>
> Listen, I'm having trouble with a math problem. Can you help me
> prove this: "Every even integer greater than 2 can be written as
> the sum of two primes."
>
> Thanks
>