Wednesday, July 17, 2013

You Have Been Calling for A Crash for 6 Months and Been Wrong, Now What?

by Greg Harmon

There are many pundits, strategists and talking heads that are in this situation. I assume that many have been wondering how to deal with it. Most have not as they suffer from some kind of bias or misunderstanding of data, or perhaps a brain disorder. Or maybe they just enjoy making stuff up. I have seen several options so far as to how to deal with it, but none have chosen the easy path. It is starting to make me sick. Real people are being affected by what some of them say. Even if they are not losing money they have not participated in a great bull run. Now we are at new highs and this is how many are dealing with being wrong.

The Postponement
This is basically saying, I am still right, it is just going to take longer than I thought. I know many that have made a career around this either in stocks or Gold or something else. One of the latest versions comes from failing to listen to the Fed Chairman and understand, when he says he is not reducing bond buying that he actually means, he is not reducing bond buying. Most made a name for themselves being right at one point, maybe only one point, and are trusted sources. Maybe they are great or maybe lucky. But wrong now. Perhaps they will be right again at some point in the future. If that happens you are sure to hear about it.

The Rationalization
This path is where they suggest that something has changed that was unforeseeable at the time of their position. Like that Japan would join the currency wars or that southern Europe would fall back into troubles. Nobody could see that coming, right? If not for those things the US markets would not be just the best house on a bad street but a real shit show. Love that metaphor. Get a grip, the market is not the economy people.

The Decay
A version of The Postponement, but only on a shorter timescale. Where the Postponement could be over years (remember Dow 30,000 calls coming back now?) The Decay is closer. A little tweek to the model. Lowering GDP from 1.9% to 1.5% instead of 1.2% for example. Or maybe the government is messing with the employment figures this month and that is preventing the forecast from being played out. These are the ‘we are on the edge, but just never loose grip with that last finger’ people.

Of all of those that have been wrong, they have many ways to combine these. I have no problem with market participants being wrong. From my stats I am wrong more than 40% of the time on my trades, and when you add in the poor exits on the good trades I am sure it is more than 50%. But I do have a problem with participants, especially that think they have something important enough to say that they broadcast in one form or another, who continue to be wrong. But even they can be forgiven to some extent when compared to participants that that are wrong, and use one of the excuses above to continue to prophesize as to why they are still right.

So how about this instead. Just admit that you were fucking wrong and move on. And when you do, do not then fall back into the Postponement, Rationalization or Decay to try to explain why. Say it like this: “I was just Wrong. This is what I think now.” Some may not appreciate it but most will. We all make mistakes. Admit them, accept them and move on.

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