Saturday, January 03, 2009

Elliot, Kondratieff, or normal service resumed?

On 26th June I looked at the progress of the FTSE since around 1984 and thought that the next low would be no worse than c. 4,500. Here's what actually happened:

The lows were certainly lower, and we have only recently learned just how close we came to a banking collapse. The question now is, are we where we "should" be - following a trend set by the last 25 years - or are there longer cycles due to make hay of the pattern of the last quarter-century? Elliot wavers and Kondratieff followers say yes.

My guess is that, after the steep stockmarket falls and the horrid crisis apparently averted, there will be a bounce in the next 1-2 years, then a decline in real (inflation-adjusted) terms for maybe another 5 years after that. Your guess?

By the way, I'd also be interested to know your views on why the bankers and brokers have been allowed to Get Away With It. To me, it seems like a big fat moral hazard and unless there is some real squealy punishment for all this bad behaviour, I'd advise any bright, conscienceless youngster to become a banker.

Currently, my preferred fantasy solution is to bust all the overextended banks, leave the shareholders with zilch, sack the senior bank managers and ban them from being company directors for at least 5 years, halve all mortgages, and give the book of business to more prudent operators including well-run building societies. In my view, this was never ever going to happen, because the FSA, the BoE and the government are also implicated. So, not so much "too big to fail", but too well-connected to fail.

But there's a price to pay, anyway: it's now clearly Us and Them. Perhaps, since they are immeasurably more powerful, we should give up trying to rectify the world and merely ape their cynicism and corruption. Moralists will demur; and so this is truly an age when we can say, "Affairs are now soul size".


Paddington said...

As I have said previously

1. The 'wave predictors' just don't work, as beautifully analysed by Jean Allen Paulos. The only reason they appear to do so is if people believe in them, and follow the patterns.

2. I still think that you underestimate the power of belief in the economy. The bankers and others responsible for this mess actually think that these ideas work. The talk on TV in the US is still 'when the market recovers'.

Sackerson said...

The poor man lost a packet on Worldcom, I read; just as Newton made a load in the South Sea Bubble, got out, got back in and lost the lot. Why does it happen to the brightest?

Sackerson said...

P.S. Re bankers - stupidity is not an excuse; if they were that incompetent, and doctors, they'd be struck off and sued to bits.

Paddington said...

They aren't stupid, they are deluded. It's no different than extreme religious belief.

As for Paulos, the reason that he lost a lot is detailed in his book 'A Mathematician plays the Stock Market'. As I've said many times, the market is driven by emotion, not logic.