After writing a number of articles about the market being delusional and then a number of articles about me being a little delusional I finally sat down with my wife to get what always promises to be a dose of reality coupled with simple but incredibly valuable insight. Unfortunately the conversation was precipitated by 3 days of intense yoga followed by 3 days of alcoholic binging that made me wonder if it was time for me to call Betty Ford and look up my old psychiatrist, Dr. Prazin. My wife diagnosed me and in doing so helped me diagnose the entire financial community, and even more specifically the stock market. She said she had been doing some research and has determined that I suffer from Narcissistic personality disorder. Determined to heal my self and improve my trading, I decided I would try to better understand my disorder and at the same time better understand the market.
Narcissists have an inflated sense of their own importance. Check there for both the market and me.
Behind the mask of ultra confidence lies a fragile self esteem, vulnerable to criticism. Check there for both the market and me.
But that doesn’t mean that the market and I are true Narcissists as defined by the mayo clinic. It may just be that we have healthy confidence in our opinions, high self esteem. I don’t value myself more than I value others, (a key component of narcissism) though I often dream of having zero responsibilities, packing a bag and going off grid for a while…. In truth I look around me, and am blessed to be surrounded by great people who are invaluable to me.
The market though, is another story. The market has been behaving like a certifiable narcissist. The market seems to have little concern for the value of others. It wasn’t always this way.
Lets review 7 symptoms of narcissism.
1. Is the market expecting constant praise and admiration? “The S&P 500, up 4.2 percent so far this month, has doubled in less than two years, the quickest 100 percent jump since the Great Depression.” This headline is all over the net. “I’ve never seen a market like this,” said Paul Mendelsohn, chief investment strategist at Windham Financial Services. A market watcher for 35 years, he is taking profits in every area but commodities.” The market is thriving on these headlines.
2. Is the market exaggerating its achievements? “Slowly, but at least so far surely, bullish sentiment continues to grow. It is now perilously close to dangerously high levels.” Say Mark Hulbert of MarketWatch. In the short term this should be bad news for stocks. But the market just seems to ignore these sentiment indicators.
3. Does the market believe it is special and acting accordingly? “The rest of the world has an interest in the US recovery because of its stimulating policies, Mr. Bernanke argued in prepared remarks he plans to deliver in Paris as finance leaders from the Group of 20 nations gather.” Mr. Bernanke seems to think we are special according to newsystocks.com.
4. Is the market taking advantage of others? Reuters Feb 17th “Energy shares gained alongside
crude oil prices, which climbed 1.5 percent on fresh tension between Israel and Iran. The tension added to concerns about unrest in the Middle East, which could lead to supply disruptions.” Many energy stocks are hitting multi year highs. But on the flip side “California’s average price for a gallon of regular gasoline hit $3.50 Thursday for the first time since 2008, driven higher by the impact of Middle Eastern turmoil on the oil market. California’s average gas price has jumped 8 cents in the past week and now stands at 35 cents above the national average, according to the AAA automotive service. San Francisco‘s average has reached $3.57, while drivers in San Jose are paying $3.53 per gallon. Not since October 2008 has California’s gas prices been this high. In June of that year, the state’s average set a record of $4.61 before the economic collapse pushed gas prices into a tailspin.” Says David Baker from chronicle news service. I fell taken advantage of when I fill my tank up at the station. Really think about it, do you ever come out of a gas station lately feeling good. The oil companies can poison our waters, get away with it, and the funnel clean up costs through inflated prices masked in middle east tensions.
5. A classic Narcissistic symptom is ones inability to keep healthy relationships. It is months now where individual stocks seem to dominate the indexes but broad stocks don’t seem to participate in the movement of the indexes. No one can tell me what the value of overbought or oversold indicators are, since all the market does is power forward. In fact Goldman Sachs market watcher Noah Weisberger had this to say on the phenomenon, in a recent note.
“Within the U.S. market, where we have the richest set of metrics, we find that both implied average stock correlation and implied average sector correlation have declined sharply so far this year. Mechanically, the decline in this metric is a function of a combination of falling index volatility and rising sector volatility (in the case of implied sector correlation) or rising single stock volatility (in the case of implied stock correlation). These measures reached historic highs during the depths of the 2009 sell off. But in the “post-crisis” era, both stock and sector correlations peaked in mid-2010 (at a whopping 0.9 for average implied sector correlation and 0.7 for average implied stock correlation) and both measures have been falling in fits and starts ever since.”
6. Narcissists set unrealistic goals. Zacks investment research Steve Reitmeister says in answer to the direction of the market “I strongly believe the answer is that we are due for more gains. Not just because there is no double dip. More importantly, there are sound fundamental reasons for the market to continue its advance.” So do many of his peers. Stock markets to not continue to advance indefinitely without healthy reversals.
7. Arrogance and haughty behavior often accompany a diagnosis of narcissism.
A. Headline MSN money Feb 4th: Ignoring Egypt, markets roar on. The political crises sweeping the Middle East join the risks of unresolved economic issues at home. Yet speculators continue to run wild.
B. Reuters Feb 10th: (Reuters) - Investors are often told not to fight the Fed, but in the U.S. Treasuries market taking the opposite stance to the Fed has been a winning strategy in the past six months.
C. FTMdaily reports: Stocks Ignore Growing Inflation Concerns
Arrogance and Haughtiness are acts of ignoring other’s opinions. to hold their opinions in disdain.
I have felt there was something wrong with the stock market for at lest the last couple of weeks. But I could not put my finger on it. But it is no relief to now know that one thing I had come to rely on for my livelihood, is so very ill.
The Mayo Clinic says, “It’s not known what causes narcissistic personality disorder. As with other mental disorders, the cause is likely complex. Some evidence links the cause to a dysfunctional childhood, such as excessive pampering, extremely high expectations, abuse or neglect.” I could find evidence of all of the in the history of the stock market.
Complications of narcissistic personality disorder, if left untreated, can include depression and even suicidal thoughts. I think the flash crash was the first indication there might be something wrong with the market, but I hope my research help you better understand what is truly going on with today’s stock market. And when the market falls into a brief state of depression, and correction, don’t be surprised. We are dealing with a classic Narcissist and there is no real cure. I expect depression to set in on tuesday, and suicidal thought by friday for the Stock Market. Buyers Beware.
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