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The Disease of Serial Optimism - Money Matters for 12/9/05
Last week, when the Dow was hovering between 10,850 and 10,900, I made a small wager with an associate that the Dow Jones Industrial Average would not close over 11,000 this year. With the Dow hovering around 10,770 today, this is beginning to look like pretty easy money to me.
Of course, this is the same associate who bet me that Tom DeLay would not be indicted, and once he was indicted, doubled down on the bet, wagering that the charges would be dismissed.
Since one of DeLay's charges was dismissed, and one not, this serial optimist (who also seems to have drunk a bit too much of the Republican-flavored Kool-Aid) is now negotiating with me on the various bets. We also have a bet on whether or not DeLay will eventually be found guilty, so my associate is holding off payment until a verdict is reached. I have a feeling that I may never collect on these Tom DeLay bets given the supercharged political atmosphere surrounding the former House Majority Leader.
My attitude, from my point of view, is reality-based; my associate's is founded on allusion and the illusions of optimism.
Further, my betting partner believe I am a pessimist. Nothing could be further from the truth as I prefer to view myself as an empirical realist tempered with a healthy dose of skepticism and cynicism. My personal optimism resides mostly in my ability to be on the right side of issues most of the time.
Getting back to the original topic, that being the immediate future of the Dow, I stand convinced that 11,000 will not be approached before December 30, the last day of trading for 2005.
Naturally, I could be wrong, but recent events point toward the inescapable conclusion that a. the economy is not as strong as some people (notably, serial liar George Bush) might lead us to believe; and b. the triumvirate of high energy prices, a coming interest rate hike by the Fed and sluggish holiday retail sales; will lead to lower stock prices for at least the remainder of the year.
When I mentioned these probabilities, my associate intoned that the Dow could go up by 200 points in one day, that retail sales could be strong, and that the Congress would hold the oil and gas producers (the same bunch of corporate thieves who brought us $3 gasoline after hurricane Katrina) accountable for the spike in crude and natural gas.
I have to admit, I nearly fell off my chair laughing, but consoled myself with the thought that I was in fact speaking to a person who was quite ill, possibly delusional and most importantly, serially optimistic.
It's not that I have anything against optimism or the power of positive thinking, it's only that it sometimes can be dangerous, especially when you're dealing with real money, buying and selling real stocks or options.
My serial optimist friend is also a serial options player. A week ago I told him to look for puts rather than calls in this market. Naturally, he hasn't needed my advice, despite the obvious tops on the various indices. Well, after all, it's his money, and he's entitled to lose it any way he likes, but I nevertheless abhor watching it happen.
Optimism, and its poor sister pessimism, being mostly emotional variations of perception, can be either a boon to investors or a bane. One should seek a balance between the two, or, better yet, when dealing with money, divorce opinion from facts entirely.
Holding strong opinions on particular stocks or markets in general - and sticking to them in the face of opposing empirical evidence - can be devastating to one's financial help. One should constantly be investigating and revising opinions as the world ebbs and flows daily in divergent directions.
It's because of this approach that I can say I am optimistic over negative prospects for the economy and stock market. And surely, that opinion will change... when events warrant.
Dow Jones: +23.46; 10,778.58 close
NYSE Advancers: 1982
Nasdaq Advancers: 1819
NYSE New Highs: 105
Nasdaq New Highs: 123
Gold: +7.50; 530.20 close
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