[Vision2020] Farrell Predicted Crash 2011 in Feb: "Your brain needs to believe lies; Wall Street loves telling lies"

Ted Moffett starbliss at gmail.com
Thu Aug 4 14:51:53 PDT 2011


http://www.marketwatch.com/Story/story/print?guid=CAACAEC0-3DC2-11E0-842B-00212804637C

Feb. 22, 2011, 12:01 a.m. EST
Market Crash 2011: It will hit by Christmas Commentary: The S&P 500 is worth
only 910. Get out or lose big

By Paul B. Farrell <PaulBFarrell at charter.net>, MarketWatch

SAN LUIS OBISPO, Calif. (MarketWatch) — Politicians lie. Bankers lie. Yes,
they’re liars. But they’re not bad, it’s in their genes, inherited. Their
brains are wired that way, warn scientists. Like addicts, they can’t help
themselves. They want to sell stuff, get rich.

We want to believe they’re telling us the truth. Silly, huh? Both trapped in
this eternal “dance of death” controlled by programs hidden deep in our
brains, telling us what to do, telling us to ignore facts to the contrary —
till it’s too late, till a new crisis crushes all of us.

Psychology offers us a powerful lesson: Our collective brain is destined to
trigger a crash before Christmas 2011. Why? We’re gullible, keep searching
for a truth-teller in a world of liars. And they’re so clever, we let them
manipulate us into acting against our best interests.

In fact, behavioral science tells us that bankers and politicians are lying
to us 93% of the time. It’s 13 times more likely Wall Street is telling you
a lie than the truth. That’s why they win. Why we lose. Because our brains
are preprogrammed to cooperate in their con game. Yes, we believe most of
their lies.

One of America’s leading behavioral finance gurus, University of Chicago
Prof. Richard Thaler, explains: “Think of the human brain as a personal
computer with a very slow processor and a memory system that is small and
unreliable.” Thaler even admits: “The PC I carry between my ears has more
disk failures than I care to think about.” Easy to manipulate.
Eternal love story: Your brain’s in love with Wall Street’s brain

Thaler’s a quant, speaks mostly in cryptic algorithmics. So if you really
want to know how Wall Street’s con game works on you, Barry Ritholtz, the
financial genius behind “Bailout Nation,” recently summarized it in the
Washington Post: “Humans make all the same mistakes, over and over again.
It’s how we are wired, the net result of evolution. That flight-or-fight
response might have helped your ancestors deal with hungry saber-toothed
tigers and territorial Cro Magnons, but it drives investors to make costly
emotional decisions.”

Humans have something “akin to brain damage,” says Ritholtz. “To
neurophysiologists, who research cognitive functions, the emotionally driven
appear to suffer from cognitive deficits that mimic certain types of brain
injuries. … Anyone with an intense emotional interest in a subject loses the
ability to observe it objectively: You selectively perceive events. You
ignore data and facts that disagree with your main philosophy. Even your
memory works to fool you, as you selectively retain what you believe in, and
subtly mask any memories that might conflict.”

Worse, there’s no cure.
Your brain needs to believe lies; Wall Street loves telling lies

Examples: USA Today headline: “Average Bull is 3.8 years: We’re not at 2
yet.” More upside. Wall Street loves it. The Wall Street Journal: “Stock
recovery in high gear … S&P500 now speeding toward its next landmark,”
double its March 2009 bottom.

Other lies: Inflation and rate rises won’t push China and America over the
edge into a new bear recession. That one’s real popular in Wall Street’s
echo chamber. Wall Street also cheers every time cable pundits and
journalists repeat their favorite statistic: That stocks rally in the third
year of a presidency, often more than 20%. Yes, Wall Street loves those 93%
lies.

Biggest lie? Wharton’s perennial bull, Jeremy Siegel, of “Stocks for the
Long Run” fame, recently told a TD Ameritrade Institutional Conference,
“There’s nothing but upside to come …the next several years are going to be
good for stocks.”

Yes, one of Wall Street’s favorite co-conspirators is hypnotizing thousands
of our best money managers and advisers into believing the lie that this
bull market will roar indefinitely. Worse, they’ll use that message to sell
naive investors on buying whatever junk Wall Street is selling.

Get the picture? A little conspiracy begins in your head, a conspiracy
between your gullible brain and Wall Street’s con men selling hype, hoopla
and happy-talk. Listen and you’ll lose.

Warning: This little conspiracy is a retirement killer. Remember: It’s
odds-on you’re being lied to. So for a few moments, listen to some highly
respected contrarians. They’re short-selling this conspiracy, betting that
2011 will hit headwinds before Christmas, turn a cyclical bull rally into a
cyclical bear market.
Our brains never learned 2008’s lessons, will fail again in 2011

Remember, we can’t help it. Our brains are defective, biased, manipulated by
unseen forces 93% of the time. So blame all the lies, lying and liars on our
brain wiring. A perfect excuse. Sure, political dogma and insatiable greed
factor into our bizarre mental equations. But your brain is as susceptible
to the “great con” as Ben Bernanke, Henry Paulson, Bernie Madoff.

Go back a few years: The subprime credit meltdown was widely predicted years
in advance. For example, back in 2007, the IMF’s Chief Economist, Raghuram
Rajan, “delivered a stark warning to the world’s top bankers: Financial
markets were headed for doom. They laughed it off,” said the Toronto Star.
Both Alan Greenspan and Larry Summers were there.

In April 2007, Jeremy Grantham, whose firm manages $107 billion, also warned
investors: “The First Truly Global Bubble: From Indian antiquities to modern
Chinese art; from land in Panama to Mayfair; from forestry, infrastructure,
and the junkiest bonds to mundane blue chips; it’s bubble time. … Everyone,
everywhere is reinforcing one another. … Bursting of the bubble will be
across all countries and all assets … no similar global event has occurred
before.”

We knew a crash was coming, Wall Street laughed.

Call it denial, or lying, or just a brain defect, late that summer as the
meltdown spread like wildfire, shutting down the economy, our manipulative
Treasury Secretary Hank Paulson, a former Goldman Sachs CEO, told Fortune
“this is far and away the strongest global economy I’ve seen in my business
lifetime.” And Fed boss Bernanke was telling us the subprime crisis was
“contained.” Alan Greenspan agreed. He was on tour, making millions hustling
his new book of excuses, delusions and lies, “The Age of Turbulence.”

Today, just three years later, the market’s just a shade above its 2000
peak. Adjusted for inflation, Wall Street stocks have lost roughly 20% of
your retirement money the past decade. Get it? Wall Street’s a big loser the
past decade. And they’ll lose another 20% by 2020. Why? Because 93% of what
comes from Wall Street is suspect, can’t be trusted.
Warning: Cyclical bull ends in 2011, new cyclical bear roars back

At the beginning of 2011 USA Today reported a contrarian forecast. Ned Davis
Research says the S&P 500 will make a run at the 2007 high of 1,565, but hit
a “midyear peak.” Then it will crash as interest rates rise. Davis
concludes: “The midyear peak could mark the end of the cyclical bull market
that began in March 2009 and the start of a new cyclical bear market.”

Warning, even though your brain doesn’t want to hear it, there is a high
probability a new cyclical bear market will begin this summer … and
overshadow the 2012 elections.

The Journal’s also warning: “Inflation jitters spread through emerging
markets, prompting China’s central bank to raise interest rate for the third
time in four months amid worries that a drought threatening the country’s
wheat crop will put further pressure on global food prices.”

Wake up America: With commodity prices rising rapidly, all the bizarre
rationalizations Wall Street uses to keep Bernanke’s interest rates low are
rapidly vaporizing. Yes, Ned Davis’ prediction of a bear will soon be a
painful reality.
S&P 500 inflated, worth just 910, get out before it tops 1,500

Grantham also sees inflation and rising interest rates killing the lies,
popping the bubble and ending the rally: “As a simple rule, the market will
tend to rise as long as short rates are kept low. This seems likely to be
the case for eight more months and, therefore, we have to be prepared for
the market to rise and to have a risky bias.”

With $107 billion at stake Grantham better be concerned. He predicted the
2008 meltdown, now sees a repeat dead ahead: “Be prepared for a strong
market and continued outperformance of everything risky, but be aware that
you are living on borrowed time as a bull.”

Yes, the bubble will pop this year says Grantham: “If the S&P rises to
1,500, it would officially be the latest in the series of true bubbles. All
of the famous bubbles broke, but only after short rates had started to
rise.”

So keep a close watch on those two tipping points in your planning, interest
rates breaking to the upside and the S&P closing near 1,500. When inflation
pushes interest rates up they’ll choke off this bull market. If you’re
active, better stop chasing higher returns, especially emerging markets.

Bottom line: In what sounds like a direct shot at super-bull Jeremy Siegel,
Grantham says that GMO’s research warns that “the market is worth about 910
on the S&P 500, substantially less than current levels” just above 1,300.

Then Grantham throws his fast ball right down the middle: “The speed with
which you should pull back from the market as it advances into dangerously
overpriced territory this year is more of an art than a science, but by
October 1 you should probably be thinking much more conservatively.”

Translation: Get the heck out of Wall Street’s stock market casino soon,
maybe as early as July 4th, and definitely get out by Christmas, because
soon all the lies, lying and liars will stop working.
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Vision2020 Post: Ted Moffett
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