Current Market Turmoil: You Can’t Explain 'Stupid'

I heard a great explanation of the current market turmoil a few days ago – “You can’t explain stupid.”  For a moment, let’s set aside the personal loss and devastation of a hurricane and think about it purely from an oil pricing perspective.  About 25% of the US oil and 20% of natural gas production comes from the Gulf of Mexico. When a hurricane enters the gulf, off-shore oil platforms must be shut down and the workers evacuated to safety on land.

Although hurricane Gustav’s bark was bigger than its bite, I understand that it will be November before production is back to 95% pre-hurricane levels.  Basic economics states that a decrease in supply results in an increase in price.  Oil pricing was falling before the hurricane, but shouldn’t a hurricane at least slow the decline?  Prices continued to fall when a second hurricane, Ike, barreled into the Gulf a few weeks later.

In March, the government bailed out Bear Stearns (BSC).  Just last week it bailed out Fannie Mae (FNM) and Freddie Mac (FRE).  Lehman Brothers (LEH) is on the verge of being wiped-out this weekend without some assistance.  The automakers have their hands out and without a doubt the airlines will be asking for some government candy too.

Bailouts add to the national debt.  That sounds like a problem, but the consequences aren’t apparent to most Americans. However, just like in personal finances, the country pays a price for too accumulating much debt.  Since “we the people” are the country, that means we will pay the price for the country taking on too much debt.  Instead of our politicians, in BOTH parties, running around saying that change is a coming; it might be a more truthful to say higher interest rates and higher taxes are a coming.  In spite of growing debt, the market continues to rally after each of these bailouts.

So what does this mean to traders?  A difficult lesson that I continue to re-learn is that you must trade what you see not what you think.  Trade the charts and manage your risk through stops.  This has never been truer than this year.  This market is beyond reason - “You can’t explain stupid.”

Comments

[guayape:]

Corruption and speculation is the caveat...
"Successful analysis, like successful investment, requires a fairly rational atmosphere to work in and at least some stability of values to work with."
Security Analysis by Benjamin Graham and David L. Dodd

2008 Sep 14 09:05 AM

[Burticus:]

Market supply and demand work (and equate at price) only under the free enterprise economic system, which can only exist under a republican (rule of law) political system. Federal gub'ment power must be strictly limited to those powers delegated by the states, or we have unlimited, arbitrary gub'ment.

Amerika is rapidly evolving toward a monopolistic, state-controlled economic system (socialism/fascism) under a democracy (mob rule) political system, which always evolves further into oligarchy (rule by the elite few). The bankster-financed career politicians in both major political parties are both responsible for this God-awful mess. They need to be fired without mercy and the Federal Reserve abolished.

Juan McAmnesty and Hussein Osama offer no change, only a choice between slow death and fast death. Chuck Baldwin, nominated by the Constitution Party (America's third largest and fastest-growing political party), offers real change, but the corporate media cartel has imposed a near-total blackout of his candidacy and party.

If we do not return to our framers' vision of individual liberty, constitutionally limited government and free enterprise economics soon, we're done. Our children will be shackled with the chains we have forged.

C. Burt Linthicum, CPA, Tampa, Florida

2008 Sep 14 09:31 AM

[notsosmart:]

the sheeples are finished.while they still swill (belgium) beer & fill the stadium they have no clue.they have no concern for their children & grandchildren.the romans had no clue either.

2008 Sep 14 10:41 AM

[mixter:]

Parasites and "do gooders" are destroying our country. Socialism equals communism, and have proven themselves capable of reducing the standard of living where it is they ruling form of government.

The environmentalists have taken over the "Dim-wit-o-crat" party. This has led to reduced oil supply and refining capacity. New refineries built in our heart land would help eliminate shut downs caused by hurricanes. More drilling would result in more oil being produced and lower prices.

Our government encouraged lending institutions to wave sensible credit qualifications so as to promote home "ownership" for minorities and low wage earners. Greedy lenders, and uninformed (nice term for stupid) borrowers were the catalyst for disaster. Now, responsible people are getting stuck for bailing out the people that caused the mess.

So much for socialism and social programs!

Pseudo-science and Al Gore's false information are promoting the hoax of man made global warming. Consequently, the stupid notion of carbon caps will cause the Western industrialized nations to regress back to the dark ages if this is not nipped in the bud.

Geology teaches us that there have been numerous periods of warming and cooling going on long before man inhabited our planet. British scientists have provided convincing evidence that the sun's solar flares (sun spots) cause global warming when they are more active, and cooling when they are less active. Carbon dioxide is released from the ocean as it gets warmer, as a result of the sun's activity, and is not responsible for for the warming. Instead, it is the result of higher temperatures.

In addition, water vapor is the main "green house" gas. How would we eliminate it and who would want to? Living matter needs water to grow and survive.

I, for one, and one of many, do not want to revert to a life style that cave men were accustom to living, because a bunch of wild eyed liberal idiots are screaming nonsense about man made global warming!

It is past time for the voters to wake up and utilize some common sense!

2008 Sep 14 11:34 AM

[chinooking:]

not so smart has it by the short hairs

2008 Sep 14 11:44 AM

[icandoitdon:]

who are the parasites, mixter? is it the greedy, republican socialists on wall street or their republican socialist friends in washington who are desperately trying to keep them afloat at taxpayer expense?

you might want to tell that born-again socialist john mc cain that he's a wild-eyed liberal idiot too, since environmentalism is part of his political brand.

2008 Sep 14 11:55 AM

[pepe:]

To "notsosmart": You are very smart!

2008 Sep 14 12:04 PM

[jkhtrip:]

The idea that Eliteism and Fascism are coming to America by some is a bit late. This country has not "lived" the free market economy it esposes since before any of us were born and has just continued its march. This country long ago was overthrown by Special Interests.

The majority of Americans I have talked with still believe (True Believers) the deluded American Dream is real. We have the Best that"MONEY" can buy and the people of the United States long ago decided it was better to play Empire and belive that What uis good for a few is good for all. The FACT is that we are not free, nor is the freedom we had going to last.

Read your history and you will see that we are in the Final stage before Dictatorship if we do not Banish Lobbying and all ability for the govornment to confer priviledge to any individuals,group, or Corporations, et al. The future will look nothing like what America was imagined to be.

2008 Sep 14 12:07 PM

[notsosmart:]

the most overlooked problem in the usa by the average american is that of the 100 biggest financial entities 49 are corps. & 51 are countries.

2008 Sep 14 01:06 PM

[Pessimistic...:]

Maybe I am on the pipe but it is a whole lot more than dems vs. reps. to toss responsibility at. Senate.. house of reps, big business, push me pull you grps, lobbyists, how about speculators of commodities and then the hedgefunders who are playing this market hard draining both ends of each run. I don't need to continue. There are good and bad in every one of these and more.
Would it be a pure witch hunt and drub them out? All of them. As far as candidates go..They all promise something. Get elected and then forget their promise or re-write their game plan. Mac, Obama, or even the gagged Baldwin. At what point do we all claim culpability? This is our nation.. all of ours. What happens when you point your finger at someone else? 4 are coming back! Truth be known I am guilty too for something I probably did back in the late 60's or early 70's. It all depends on who's perception it come from.
The long and short of it. Boone said it best. Drilling will not fix it. Great idea just the same. Then came Pelosi. Do you know how many shares of CLNE she bought into? Are you kidding me? She really buying into CNG? Did she really buy them or did somebody ( lobbyist) buy for her and get something in return? What happened in SB in CA is long gone and tip toeing around it put us way behind the curve. Now the Alt fuels issues? behind the power curve again. Ethanol.. as the only viable future od biofuel?? 3 and 30 ring a bell? How soon will water be considered the no. 1 commodity? Wind and the Texas corridor? Great idea, better get rolling..now! It is still 5 plus years away. Washington and Wall street. You would think they were across the alley from each other by the way business is getting done. Why do people clap at 1600 hours when the bell rings? Relief? Do they also provide Pepto,Alka and Rolaids at that podium? Well, at least you buy those companies as they are most likely great defensive plays in the hella volatile market. I guess hella is a kids term but best describes here our dire need for positive consistency.
The biggest point I am making is there are so many prople involved with so much corruption where do you start? Where do you draw the line? Do you take these numbskulls out behind the shed? Maybe that is there problem.. got taken out too many times and now they drool. maybe they cannot make the right decision. Is Euthanation out of the question? Some of these slimeballs have completely ruined many a good person one way or another. Many knowing exactly what they were doing. How do we trust these people to make the right decisions with such lousy past practices? How many chances do you give them? I have to go take my pepsid now.

2008 Sep 14 03:49 PM

[Did U Think...:]

Stop picking away at the symptoms and get down to the root cause if you want to really understand any of this. The root cause is lack of sound money. The central banks of the world (i.e. federal reserve, etc.) and their fake, fiat currency "debt money" along with the fictional reserve banking system are the root of all money evils. It is these policies which is driving us toward socialism. The money powers that control our gov't currently have to tussle with other money powers around the world which control their gov'ts. They will eventually turn into one big gov't so that there is no place for the average worker to hide. When they achieve one world gov't with a global police force you can bet that any calls for fairness or "rights" by the sheeple will be dealt with either by a rifle butt in the face or by a quiet disappearing of the rabble rouser.

"They, who would give up an essential liberty for temporary security, deserve neither liberty nor security."
-Ben Franklin

2008 Sep 14 05:29 PM

[1worldcurrency:]

Easter Island had no environmentalists. When they had cut down every last tree on the island (it was a free market, after all) their society collapsed and the standard of living decreased for centuries.

2008 Sep 16 06:55 AM

[regeya:]

Ponzi Scheme, feel free to send as much of your worthless paper to me as possible!

Honestly, is it just me or do the von Mises followers sound like anti-Marxists?

2008 Sep 16 02:16 PM

[Contrarian ...:]

Stupid is as stupid does, but the smart money is on commodities anyway...

Unlike Stocks, Stupidity Can’t Wipe Out Commodities

www.contrarianprofits....

2008 Sep 16 04:30 PM

[Rabbito:]

I can explain stupid -- this article

2008 Sep 16 04:40 PM

[Marcos Leiva:]

take that stupid seekingalpha.com/artic... and go back to the fundamentals:
Rules of investing
First Rule -Don't loose money
2nd Rule -remember the first rule.

2008 Sep 26 06:38 PM

[Did U Think...:]

I will hang onto my worthless paper in order to buy real gold from a real sucker who still thinks the worthless paper has value.


On 2008 Sep 16 02:16 PM regeya wrote:

> Ponzi Scheme, feel free to send as much of your worthless paper to
> me as possible!
>
> Honestly, is it just me or do the von Mises followers sound like
> anti-Marxists?

Aug 20 09:42 AM