“All Clowns (in the Market) Must be Destroyed”

[This post is for mature readers only.]

Some 12 years ago when tech stock bubble was in full swing, Luc, a regular poster on the Silicon Investor boards used to end his comments/posts with a tag line, “All Clowns Must be destroyed.” I used to get appalled at the meteoric rise of stocks some of which appreciated 200, 300 or even 400 percent in a week. I felt that the political and the banking establishment has enabled this bubble behavior with cheap credit. I also felt that if bubble were to pop (which it did) it would have devastating consequences on the economy (it had). Disgusted by the manic behavior, in Dec 1999, about 3 months before the bubble popped, I extended Luc’s rhetoric in a tongue-in-cheek manner with a discussion thread titled: “All Clowns Must be Destroyed.” I defined a clown here and here as:

1. Who expects clowns 2 through 17 will see the light before he himself bites the dust.
2. Who expects the markets to grow at least 30% per year.
3. Who thinks that the Feds and AG have a panacea for market ills.
4. Who thinks that it is the duty of the Govt. to save them from their stupid mistakes.
5. Who expects the market to value EBAY on par with Boeing.
6. Who thinks that it is the short sellers who drive the market down.
7. Who thinks that NasDUNG can continue to rise 70-80 points per day for ever.
8. Who thinks that he can sell ahead of everybody before the inevitable bear market arrives.
9. Who expects every one to be a millionaire and still doesn’t expect inflation to be a problem.
10. Who tells people with un-bullish views on a stock to get off the thread.
11. Analysts who keep reiterating buys and raising targets and insist that losing more and more money is the key to higher stock prices;
12. Market strategists who utter nothing but buy no matter what the stock prices are.
13. Politicians who are cowards enough to speak-up against blatant abuse of the system by Wall Street vested interest groups, corporate managements, administration and the Federal Reserve Board itself.
14. Wall Street bigwigs like Goldman Sachs who some how manage have every thing both ways.
15. Gazillion hedge funds which can not only screw themselves but whole economy.
16. The folks at central banks who stooped to the level of cheerleading the Bubblonomics®!
17. All public who puts-up with clowns 1 through 16 with the fear of spoiling good times.

Good natured jabs were exchanged among a group of online friends who had a good understanding of how markets work. About 3 months after I started that thread, market started imploding. Two years later, most Clowns were in fact destroyed.

Then came 9/11 attacks which gave Greenspan an excuse to showered the system with liquidity in the form of cheap credit for a long time. Lest we know – wherever we see a lot of showers, we see mushrooms. So, more clowns got mushroomed in the ensuing years (2002-2007). Then came the 2007-2009 market implosion.

Bernanke’s approach was different, from Greenspan’s style. Ben got on his pet helicopter and poured the system with dollars. These are not just showers – rather – deluge of trillions of dollars. Well, 2009-2011 saw more Clowns, this time a new breed of them – called Algo clowns.

The same philosophy of mine from 12 years also applies today. That it, the system should be flushed from the excesses created by all this monetary policy blunders. To put it in a tongue-in-cheek metaphor, this time these excesses are manifested as more formidable and mutant Clowns.

Ladies and gentlemen, what you are witnessing in the financial markets around the world is a creative destruction of these Clowns. It may be very unhealthy for our pocket books in the short term (2-3 years) in the long run this cleansing is necessary.