2008

The first person I heard keeping a track of DOW on a day to day basis was a business school senior of mine from the class of 1997. Little did I know then that in barely ten years, the world will get glued to DOW daily and intraday movements. And nothing will matter more than where the Dow was headed. We are in the age of DOW, and DOW psychology rules. The grip is so powerful that an emerging market broker in Romania after a market update to his client starts talking about what the client is interested in most, the bailout meeting. The respective client will be missing the UEFA CHAMPIONSHIP match between CFR CLUJ and CHELSEA to watch the bailout meeting at home.

We have an index of phone calls at Orpheus. This is an internal sentiment index that we use. The more the calls we receive in a certain week, the stronger the market sentiment. The week that went started with frantic calls regarding the market volatility. “I am long on the market after markets fell 10%, but they don’t seem to stop falling, and now DOW is down too, what should I do?” Another query was, “When will this fall stop. How low can it go?” Another one involved Fannie Mae, Freddie Mac, and Merrill. “What was their future?” Another was regarding short selling ban and how will it modify market behavior? “What else will the regulator do? Open interest has increased in the market, what does it mean? I am still in doubt regarding the bottom. Does doubt about a bottom make it a better bottom?” Of course once in a while we also have the regular confessions regarding leverage and need for vacations and detachment. Markets do take a toll on human psyche and more the emotional maturity better it gets for the investor, trader or speculator.

“The fundamental business of this country is on a sound and prosperous basis,” President Hoover, in October 1929. “The economic fundamentals of this country remain sound”, Ronald Reagan, in October 1987 are clear historical precedence regarding the worthless of news, as Ralph N Elliott pointed out in 1930’s. October connects us like nothing else. Elliott also mentions about the French economist Pigou in his market letters, published by the New Classic Library. Pigou discussed at length psychological errors and their relation to booms and depression. He maintained that an error of optimism tends to create, throughout the community, a certain measure of psychological interdependence until it leads to a crisis. Then the error of optimism dies and gives birth to error of pessimism. We are nearing October 2008. If this looks like just another calendar date, think again.