Monday, October 27, 2008

Is The Financial Crisis Making You Psychic?

Psychic or psycho?
From ClusterStock:
No. Of course it’s not. But it may be making you believe you are psychic.

Melissa Lafsky at Discover Magazine’s science blog points us toward this article in Newsweek, explaining how belief in the paranormal skyrockets when people feel like they’ve lost control of their lives. Here's how Lafksy explains it:
If you’ve picked up a newspaper, watched a TV, or checked your 401K in the past few months, there’s a near-perfect chance that you’ve experienced the full miasma of fear, anxiety, and helplessness that accompany loss of control. We hate that feeling—it’s a trait embedded in the human condition. And we’ll go to any lengths—including “developing” the ability to talk with the dead, see invisible patterns, and read the stars—in order to avoid it....
...Lafsky also points out a study in this month’s Science demonstrating that when people feel they lack of control in life, they experience sudden increases in “invisible pattern-seeing." "People primed with a sense of powerlessness saw more images in static, found more conspiracies in written stories, and imagined more patterns in financial markets than those who were left alone," Lafsky writes....MORE
That effect is something you must always be on guard against and not just in the markets. I get crabby when folks think they can read my mind. My thinking isn't that transparent. (is it?)
Last week MarketBeat posted "Written in the Stars" wherein somebody I've never heard of says the market would bottom today:
...Panic lows have historically occurred on day 27/28 of the 7th lunar cycle, which are this Sunday and Monday. The panics of 1857/1907/1929/1987/1997 all marked their lows on these days in October!”...
There is a long history of this stuff, everybody wants to know the future.
One of my favorite examples comes from a "American Experience" episode, "The crash of 1929"
(we linked to it in reference to Joe Kennedy's pool manipulation of RCA)*
1929 February: Astrologer Evangeline Adams, who counts Charlie Chaplin, Mary Pickford, and J. P. Morgan among her clients, predicts the market will rise in the coming months.
This is contradicted by her comment:
"In 1928 and 1929... it behooves everyone to be extremely cautious in investment and money matters, and be prepared for this threatening configuration of planets". The stock market crash occurred in October of 1929.
Or it may just be an earlier version of the Cramer technique.
Ms. Adams was reputed to call the crash later that year based on the horoscope of Mr. Morgan's son Henry Sturgis (founder of Morgan Stanley).

*Robert Kennedy Jr., Global Warming and Wall Street
...According to Wikipedia Robert Jr.'s grandfather bought the property in 1928. Already a wealthy man Joe Kennedy had another Wall Street trick up his sleeve, a classic pump-and dump. In 1929 he and some other rascals got together to run the .com of the day, Radio Corporation of America.

What a run it was! The pool picked up $5 million in ten days. My BLS inflation calculator says that's a bit over $60 million today (although the PBS special linked below says $100 million).

When the question arose as to who should manage the pool the answer was easy. Who better than the specialist in the stock, Michael J. Meehan! PBS did a good job on their show "The Crash of 1929", even interviewing Meehan's grandson. Here are some of my links, Senate Hearings (4 page PDF), 1948 SEC chief counsel memo on the Act of '33 (5 page PDF), Colliers story on the early SEC.

One of Joe Kennedy's most quoted comments:
"It's easy to make money in this market," said Kennedy, famously, to an associate. "We'd better get in before they pass a law against it."

It must run in the family "We got ours, now you, git..."