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Human Nature 1.0
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Human Nature 1.0

by The MoleNovember 22, 2013

As you may have heard – the Mole does not read the news. Actually, to be more precise, he avoids it like the pestilent mental contagion it has evolved into over the years. A bit over a year ago I actually wrote a pertinent post in which I encouraged all readers to unplug themselves from the matrix and in its stead adopt a strict information diet as part of an effort to regain peace and mental balance. However, that said, as a financial blogger my readers often feel the need to share with me salient articles, especially those high on the list of needing to be preserved for posterity.

And with that I present to you this morning’s jewel:

Dow 20,000 – here we come. It’s different this time.

Now whether the Dow will one day actually touch 20,000 is not the issue here. What is however is that of human nature. In a world where information can spread across the planet in a matter of seconds, where the relevancy of news often only lasts days, and in which the lifespan of our devices delivering said information is now measured in mere years, and sometimes even months, there is one important component that has not been upgraded for a very very long time.

Yes, you probably guessed it. It is us. Human beings have not changed significantly for tens of thousands of years. We may have been smaller or even taller at times, we dress differently, and our social customs have evolved over time. But the human brain of a prehistoric fellow bashing it out with saber tooth tiger some 15,000 years ago is almost identical to the hipster yapping on his cell phone in the theater while you’re trying to enjoy the latest 3D blockbuster featuring said saber tooth getting clobbered at the local cineplex.

So here it is – the weak link in the chain – and the final recipient of the flood of information that now is being channeled into our collective minds. The hype, the gossip, the fear du jour, the big news, and of course the small news courtesy of our latest glorious digital contraption designed to enrich our lives – social networks. We are now being inundated with information 24×7 and we all squeeze it into our strained frontal cortex and leave it to our synapses to duke it out with each other. Somehow we all try to make sense of it all. Whether or not this is a good thing or a bad thing isn’t the purpose of this article, I leave it to the reader to make a call on this one.

What is the issue is that we have not changed in any significant way. Not only are we the same human physically we are almost identical mentally. So effectively we are using the same brain designed to alert us to that saber tooth lurking behind the next rock to drive cars, operate heavy machinery, write essays on a computer, analyze charts. You get the point. Basically we are still running the very same mental firmware that kept us going tens of thousands of years ago. Fortunately it’s rather plastic and thus far we have managed to somehow keep up even if sometimes it feels we’re scraping by the seat of our pants.

There however is one aspect of our consciousness that has barely changed and is almost identical to that of our ancient ancestors: human nature. If there is one constant you can expect in the game of trading the markets then it is that of human nature. For one, and all wishful thinking to the contrary, we simply don’t learn from past mistakes. Yes, we may realize that touching a hot plate will result in burned mittens. But even that one gets re-tested every once in a while. Predictions are another mental flaw we keep on pursuing – for some reason we constantly try to predict the future. Sports, lottery numbers, our personal future, the weather (although we get better on that one), you name it. Are we any good at it? Yes astonishingly we are – but only when it doesn’t matter. But we are in fact pretty horrible at making predictions when it matters the most. When it comes to tsunamis, earth quakes, terrorist attacks, stock market crashes, we have a pretty bad track record. Just ask Nicholas Taleb.

Which brings me to the financial markets – supposedly a system built on market efficiency. A hypothesis which asserts that financial markets are informationally efficient, whatever that means. The truth is that it is good old human nature, yes the original version, release 1.0, that still drives us and thus the markets. And that invariantly leads us to conjuring up silly predictions like the one featured above. Let me ask you – the reader: Did you back up the truck and loaded up on long term Dow 10,000 options in March/April of 2009? Or two years before that – did you sell your house and borrowed a few hundred grant from your local loan shark to short the heck out of the S&P in mid to late 2007? And then took profits in early 2009? Of course not. You didn’t do any of these things because you didn’t have a damn clue.

But for some unknown reason that doesn’t keep us from trying, does it? It’s human nature – v1.0. And I don’t expect an upgrade any time soon. I leave you with a few quotes from some enlightened minds – who knows, perhaps somehow they managed to acquire an early release of v.1.1?

“Two things are infinite: the universe and human stupidity; and I’m not sure about the universe.”
– Albert Einstein

“Never underestimate the power of stupid people in large groups.”
– George Carlin

“People often claim to hunger for truth, but seldom like the taste when it’s served up.”
– George R.R. Martin, A Clash of Kings

And my favorite:

“Most human beings have an almost infinite capacity for taking things for granted. That men do not learn very much from the lessons of history is the most important of all the lessons of history.”
– Aldous Huxley

It’s not too late – learn how to consistently bank coin without news, drama, and all the misinformation. If you are interested in becoming a subscriber then don’t waste time and sign up here. The Zero indicator service also offers access to all Gold posts, so you actually get double the bang for your buck.

Cheers,


About The Author
The Mole
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at various social media waterholes below.
  • CorporalCarrot

    Thought you’d like that one :)

  • RacerXX

    DOW 20,000?! Wow I better get to buying stocks!

  • Ronebadger

    Here’s some quotes from Alfred E. Newman:
    “Man does not live by bread alone, but some people get by just on crust”
    “Blessed are the censors, for they shall inhibit the earth”

    Answers to a couple of questions from the other day:
    What side of a dog has the most hair? The outside.
    How far can a rabbit run into the woods? Halfway…after that, he’d be running OUT of the woods.

    Have a nice trading day!

  • DarthTrader

    Selling volume in crude . . . highest volume on 10 min chart in a week

  • BobbyLow

    Excellent!

    I’ve been waiting for “It’s different this time” to appear again.

    Brings back memories of the Internet “replacing brick and mortar” back in 2000. Then there was no limit on how high real estate would go in 2007.

    There were aproximently 7 years from the peak of the Tech Bubble to the peak of the Real Estate Bubble. And from the 2007 to 2014 is another 7 years of the Fed Bubble. Hmmmmm?

    However, I must always remember that:

    “The market can stay irrational longer than you can stay solvent.”

    John Maynard Keynes

  • Fearless

    I think we’re in 1999. Watch for a possible explosive move to the upside on the Nasdaq starting in early December.

  • CorporalCarrot

    I have seen some very compelling statistics showing that the length of economic recoveries is getting longer and longer and that the current one could have a few years left before fed tightening is an issue.

    I personally don’t think 20k is that far fetched but I just thought the “this time…” Was funny.

  • BobbyLow

    Excellent!

    I’ve been waiting to see “It’s different this time”. Again.

    Brings back memories of Tech replacing Brick and Mortar as the Naz broke 5,000 when there were no limits as to how far the Naz would go. 7 Years later we have the Peak of the the Real Estate Bubble as there was no limit on how high Real Estate prices would rise. (You can’t make this stuff up) :)

    Well another 7 Years have passed by with the current Fed Free Money Bubble in play. Hmmmmmm?

    However, probably should keep in mind;

    “The market can stay irrational longer than you can stay solvent.” …

    John Maynard Keynes

  • Skynard

    Most excellent post. Love it!

  • Greed is Good

    Dow 20K isn’t far fetched at all going out a bit. Just 30 years ago Dow 1000 was an all time historical high. And look where we are now. Sweet 16.

  • bdoone

    Talk about low volume: it took 15mins for 7M SPY to trade.

  • DarthTrader

    I think we are in 2006 about to have a Double Top with the first top in early Dec the interim bottom in early Jan 14 and the Final Top Early Mar 14 . . . whether we get major sell off from there . . . we’ll see.

  • DarthTrader

    Looks like that volume in crude is calling the move, now down 1.15

  • CorporalCarrot

    I don’t think we are in 1999 at all. This is a completely new environment. I’m writing a piece at the moment based on a lot of information and opinions I have received at first hand over the last couple of years from multi billion fund managers.

    I really don’t think the average retail trader understands what is on the other side of his trades and how intellectually shallow the bull case is. But it fundamentally comes down to a lack of alternatives and a simple asset allocation decision. Absent black swan there is no foreseeable catalyst to change this position which is why the market can continue up for years. Not saying it has to but the balance of probabilities favours higher prices before a correction.

  • BobbyLow

    I hear what you’re saying Corporal. But I’ve also heard that “Asset Allocation” story many times as well.

    And yes, the market could go up forever if the Banksters get their way on Inflation. However, nobody could explain to me what would happen when the average person could no longer afford to buy a home while home prices continued to rise during the last bubble. And now nobody can explain to me how we can have the amount of inflation necessary to accomplish their goal without massive increases in wages.

  • http://dartht.blogspot.com/ Heisen_Gerb

    when you say ‘many times’…I believe it.
    did you ever have lunch with Mr. Livermore?
    😉

  • http://dartht.blogspot.com/ Heisen_Gerb

    http://www.livescience.com/4380-humans-baboons-stress.html
    [Human Stress Article]
    a baboon gathers food for 3 hours daily? I should spend no more time than that at the screen.

  • CorporalCarrot

    I don’t disagree there is a massive disconnect, possibly a historic one, between Main Street and Wall Street. You should come to Ireland. The popular narrative is that we are poster children for austerity, have sorted out banks out and now are good European citizens having exited the bailout. None of these things are true at ground level but who cares?

    And for every anecdote you can throw at these guys they will have historic tables going back to WW2 and before, to show why that isn’t relevant for the price of stocks. There is an absolute flood of money waiting to buy the next dip.

    I won’t get into it further here but for this thing to correct needs fiscal cliff or more European shenanigans I think.

  • bdoone

    Already feels like I’ve been sitting at screen for 3 hours!

  • SirDagonet

    Nicely articulated post, Mole…
    A few observations:
    1. (relatively short term) swing trading (the emphasis of this blog, yes?) is well served by the admonition to watch current setups and current price action.
    2. the “big picture”, to the extent anyone has any reasonable evidence to offer a prediction, is – I think – a nice bit of backdrop information to have. It offers perspective. Notwithstanding that there is a glut of information *far* to large to read, review or assimilate, and that selecting “trusted sources” is also a challenge.
    Re #2… in 2006, I read the book “Sell Now! The End of the Housing Bubble” by John R. Talbott. I WISH I’d heeded his advice, sold my house, and repurchased something similar after the housing crash. Of course, the first sentence on page 1 of the forward says “In 2003, I wrote a book entitled The Coming Crash in the Housing Market…” So – had I read his first book, would I have thought he was overreacting with the second? Not sure. Either way, I didn’t sell, but fortunately it didn’t destroy my financial situation.
    I muse about this because, looking beyond 20k on the DOW (which I think is largely irrelevant to my longer term concerns), I think there are ominous financial clouds on the US and worldwide horizon – and I wonder how best to prepare for them – and whether or not there is even a way for a “normal, middle class citizen” to do so.
    Mole, you repeatedly carry the banner saying we’re all screwed. And I’m not suggesting the focus of this blog change, but there are some good minds here & I’d like to see a little discussion on the matter sporadically about long term methods to prepare.

  • Rightside_ot_trade

    /GC hourly, triple inside period, NR4, just above 25ma, 3 shooting stars

  • Skynard

    FTM, short /ES 1800

  • Skynard

    Too strange, dollar down .5%. PM’s going to blow

  • BobbyLow

    I know a fellow former trader who was and probably still is a Gold Bug. He is a real Doomer/Gloomer regarding worldwide economies etc. He was a bigger market bear than I was back in the day and lost his ass. Whatever capital he had left, I think he put it into gold. Since my last contact with him, Gold has lost about 25% of it’s Value.

    We used to argue about Inflation (Him) and Deflation (Me). The ultimate winner of this argument remains to be seen. However, it appears that I am winning at least in the short term. (As proved by the past and current Worldwide Banksters mad attemp to Inflate.)

    Throughout our many discussions on the matter the one thing that we could agree on was to be relatively DEBT FREE even though debt free with cash being king leans more toward my side of the argument than his.

    Am I concerned about the what the future holds? Of course. But I refuse to seriously worry or even be continuously pissed off about what Banksters are doing. Why? Because although it took me a long time to realize this, I finally came to the conclusion that it is impossible for me to be pissed off and happy at the same time.

    In reality, I am powerless over what these bastards do. But I do have the power to control my own debt and the power to trade without bias.

    That’s about it.

  • Bun Dance Kid

    Can someone kindly point me to a free live YM chart – I’ve forgotten where I used to look for it :-)

  • BobbyLow

    Strange? Look at Oil. The past few days Oil has been a product without direction. I’ve been able to hold long through these fits and starts and from buy to sell and back to buy again but they sure are taking the fun out of it. :)

  • Bun Dance Kid

    Did we break or touch yesterday’s YM high about 30 mins ago?

  • Skynard

    Not an easy tape by far, looking forward to the plunge right here:)

  • http://ibergamot.blogspot.com/ i Bergamot

    This is a bait I can’t refuse…lol

    Preparation:

    1. Always have full tank of gas
    2. Always have some food and water at home
    3. Always have at-least one month of spending cash on hand. This doesn’t need to include any bills you have to pay, just money your family spends in stores etc on average month.
    4. Do buy some gold and silver coins. Keep them handy.

    Before you think I am crazy, ask yourself this: How often does shit hits the fan? Every 100 years or so. When was it last time? Unless you are planning to die some time soon, you will see that fan in action in your lifetime. Remember, Noah build that ark BEFORE the rain started…!

    Financials:

    Get out of debt!
    1. Pay off ALL card and loans. No other investments are possible, before you do that.

    2. Do you want to make at-least 4% risk-free return for years and years? (Most hedge-fund managers would kill for this secret). Pay off your mortgage! No kidding.
    Wonder about interest deduction? Don’t. Its a scam. Just do your math – you’ll see.
    3. Pay cash. You will be surprised…. Especially when it comes to healthcare.

    Investments:

    1. Don’t put your eggs in one basket! Literally!
    Split your money between different institutions.
    CD goes to TBTF bank
    401k or IRA goes to Vanguard or Fidelity.
    Trading account goes to any big house – IB, Ameritrade etc, or just play with big dogs and go to Goldman. may be commissions and requirements are not as good, but the are not gona go MFGlobal on your ass (well, hopefully)
    2. Split your trading account into 2-4 different strategies.
    This maybe easier said than done – takes a lot of time to manage bunch of positions and watch list, and research, etc
    3. Keep position size small. Whatever you think your position size should be – half it.
    4. Keep stops wide. Wherever you think your stop should be – is also everybody’s else.

    5. Don’t listen to idiots like me – do your own thinking

    (This message may self-distract, but I hope not…lol)

  • http://evilspeculator.com molecool

    As I said above – that is not the point. Predictions are what ails us traders – they are toxic.

  • BobbyLow

    Can I add have plenty of Ammo on hand? :)

  • http://ibergamot.blogspot.com/ i Bergamot

    I am not a violent man
    Have you ever killed anyone?
    In a way that you know for sure – you did it. With blood and smell of ‘gun-powder’?
    Can you live the rest of your life with this memory?
    i am not joking

    I would rather run… seems like more fun, anyway

  • CorporalCarrot

    I totally over traded this morning and got lucky. Went egregiously short in premarket around 16020 it was only pure luck I got out of it profitably in the dip after the open. I just cut my gold short there took around $30 of the move.

    At this point I’m stepping aside, when I start to feel like I’m over trading, disaster is usually just around the corner, so better to quit after an awesome week.

    Fwiw I am now outright long again (ltbh basis), and My read on the market is we have just overcome resistance (or will have if we close at these levels). I think we could be on the verge of a powerful breakout here but I need confirmation before trading it,the squeaker high this morning is not enough for me (especially on a Friday)

    Have a great weekend all and keep it cool and keep your minds open and unbiased. Anything could happen here.

  • http://evilspeculator.com molecool

    ¤ø„¸¸„ø¤º°¨¤ø„¸¸„ø¤º°¨

    ¨°º¤ S H A K E N ¤º°¨

    ¸„ø¤º° B A K E !“°º¤ø„¸

    ¸„ø¤º°¨¤ø„¸¸„ø¤º°º¤ø„¸

  • http://evilspeculator.com molecool

    Nothing wrong with sitting out a few days. Unfortunately you are picking a pretty good time to get positioned. So make sure you don’t over trade during whipsaw periods. Preserve your energies for the good times.

  • BobbyLow

    Good luck with that.

  • BobbyLow

    No I have never killed anyone.

    But you can bet your ass if it’s my life or my wifes life at stake I damn well could pull the trigger.

    I live way out in the country, if someone ever broke into my house at night with the purpose of causing us harm, I have a loaded 12 Guage Shotgun right beside my bed. If I cocked my gun and the intruder didn’t stop, then it’s goodbye intruder. Sure I could call 911 and in 15 or 20 minutes the deputy might be here. By that time me and my wife could be dead.

    Run? Really?

  • http://ibergamot.blogspot.com/ i Bergamot

    I agree – Can’t count on police
    I agree – Your life and your wife …

    But here where your plan breaks: warning, waiting to stop…

    Its a fallacy of civilians to assume that perpetrator might get scared and retreat. In reality they don’t.

    My point is this:
    If you made up your mind to ‘stay your ground’, than your only course of action is to shot before the other guy. No warning. Surprise or die.

    Think about it. Also think who and why braking into your house. I did

  • BobbyLow

    Just for the record, in order to put a load into the chamber you have to pull the pump. When you do this it makes a very loud recognizable sound to most people. This sound is the only warning the intruder gets. If the person runs after hearing that sound. Then there is no reason to pull the trigger.

  • SirDagonet

    Inflation vs deflation (disclaimer: I was a psychology – not economics – major)… I think your current prediction was accurate.

    But long term, what solutions are available to monetize our (and the rest of the world’s) enormous national debt? I can only think of two: inflation and/or dollar (or other currency) devaluation.

    I’m not a gold bug either, but if one were to think long term and significant inflation is in our future, then gold will *probably* be a good hedge. But until that process begins – assuming it’s not an overnight event – then gold will be all over the chart, and Mole’s CI & discretionary setups (or your own system) will best serve a *trader’s* interests in being short or long gold. Additionally, I read that for catastrophic events (perhaps like iBergamot contemplates) small denomination gold or silver coins are desirable.

    Short the dollar? Probably the same situation as above – nearby, follow CI or other trade setups…

    I read Jim Rogers’ “Hot Commodities…” book when released (I’m not a particular fan of Rogers, and it’s impossible for regular investors to prepare for anything like a Billionaire can…), and he posits that various commodities, especially the ags, are a good way to invest wisely and prepare for future (and any possible calamities)… Well, I dabble in ag futures, and you can only go out so far… if inflation drives food prices into the stratosphere, you probably won’t be able to effectively roll contracts for a year or more… (If you live in the country like BobbyLow, you can probably get some food from local/neighbor farmers…)

  • SirDagonet

    I don’t disagree with anything you’ve said, but my perspective was for a bit longer term… as in, what if we see significant inflation (maybe not hyperinflation like Germany did once)? Re gold, see my response to BobbyLow…

  • http://ibergamot.blogspot.com/ i Bergamot

    I read your thing below. Like it.

    Here is a workable plan for longer term (10 years plus), considering inflation:

    1. Consider mutual fund for S&P 500 index from Vanguard (low cost is The Key). Don’t brush it off. This is a ‘cream of the crop’ of stocks, continuously changing its composition to create upward equity slope. Some of my thoughts on a subject are here: http://ibergamot.blogspot.com/2013/09/the-wonder-of-dow-paradox.html

    2. Save equal small amount every month. $500 or $5000 – whatever seems small to you. Invest into mutual fund VFINX on a 1st of the month if following conditions are met: close of previous month is higher than a month before. If not – keep it in money market at Vanguard, until next month. Reinvest whole cash balance on next buy signal.

    You can get fancy with it, add MA’s, filters etc. But main point – it keeps you in the market, without buying into Bear Market until first meaningful bounce. In the mean time, you keep reinvesting dividends and get free shares, and there is no commissions, and their expense ratio is lower than SPY.

    3. There are no stops. This is a Long Term System – 10 years or more. You will have a 50%+ draw-down, but you can not sell. It can only be done with S&P or Dow Industrials.

    4. Now do this:
    take monthly chart of SPX going back to 1970’s. Mark all buy points, calculate value of your account today, see your profit. Now you believe me?
    This is what you can make in next 40 years
    If you are over 60 – it may be late, but you can teach your son to do it

  • SirDagonet

    “If you are over 60 – it may be late, but you can teach your son to do it”
    I am, I hope not, and I will… (BobbyLow and I might be the only two “modern maturity” members here…)
    Good food for thought, iB… I’ll esp check into #2
    Hope there’s interest in others adding to & expanding the discussion… for now, everyone have a good weekend..

  • http://ibergamot.blogspot.com/ i Bergamot

    But don’t forget about #3.
    Everybody is a long-term investor until a long bear-market. Guilty myself
    Also don’t think that trading without stops is acceptable. The fastest way to lose money is to disregard risk management.

    It ONLY applies to this particular system, and ONLY is you can keep that money invested for more than 1 whole business cycle (8-14 years)
    Enjoy your weekend

  • BobbyLow

    Based on what you said and our previous conversations, I think you’ll be just fine. :)

    And BTW, when I see real economic growth sufficient enough to drive wage demand, I’ll join the inflation camp. Until that happens, I’ll stand pat because they can only inflate so much without wages going up. If wages don’t go up then product demand would have to go down even for food where less expensive food alternatives would become the norm.

    JMO