Relaxed Permabear Savors a Cohiba


Surging stocks have us bears on the run, according to a story played prominently in Monday’s edition of The Wall Street Journal: “Investor Sentiment Is Improving, Making It Harder for Wall Street’s Pessimists to Hold Their Ground”.  Oh really?  We’d thought we were simply enjoying the show. It’s not as though permabears are always short the market, or that we don’t understand that stocks can sometimes veer sharply higher for no apparent reason. In fact, we trade the uptrends when they look promising (as the current one does, up to a very certain point), and we try to short every “Hidden Pivot” rally target that looks capable of producing, if not The Mother of All Tops, at least a tradable swing high that could endure for a few days.  And when those trades work out well, we treat ourselves to a good cigar, or take the Missus to dinner and a show.  We can wait.

That’s because we don’t work on Wall Street, where the rare bearish analyst is as welcome as a rattlesnake at a picnic. “I’m getting a lot more pushback than I usually do,” avers Gina Martin Adams, a Wells Fargo analyst who has forecast a 7.5% drop in the S&P 500 this year. Imagine what kind of blowback she’d get if she declared that her long-term target for the Dow is under 1000. We did that ourselves during an interview some years ago on a Bay Area TV show.  When the interview was over and the mics were switched off, the moderator asked whether he’d heard us correctly. Yes, we replied. And we were never invited back. Hard to blame him. Who wants to hear about Dow 800 when the proletarian mind is fixated on Dow 15000?  We’d be the first to agree that, at 800, the Indoos would be pretty oversold. But you’d have to be dreaming to think that when this market finally falls, and falls hard, it will settle at a level where everyone pretty much agrees that prices are reasonable.

The Black Swan

Did we mention that we’re reading Nassim Taleb’s The Black Swan? Turns out, investors’ brains are actually programmed to think that when stocks go up, up, up, the rally will continue more or less indefinitely.  This is called linear thinking, and as we know, most investment decisions are as linear as a drive through Kansas and Nebraska. In the investment world these days, the most linear thought of all is that because the central banks are continuing to pump money into the financial system, stocks have nowhere to go but up.  Certainly seems that way.  Taleb makes clear , however, that it is futile for humans, with our linear way of thinking, to speculate on what might change this.  But something surely will, and in a big way — like the cockroach that accidentally crawls up one’s trouser leg, or the driver who steps on the gas just as a yellow signal has turned red.


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Comments on this entry are closed.

Chris T. January 30, 2013, 4:29 am

was driving behind an (almost) brand-spanking new 5er Bimmer today.
Had an Obama / Biden sticker on the back.

Made me think of people like Gary

Pat January 29, 2013, 10:21 pm

Dow 14K this afternoon? Teflon market for sure. Probaly new all-time highs after Fridays job report.

redwilldanaher January 30, 2013, 1:00 am

Teflon or Ant Farm Market?

Dave January 29, 2013, 9:57 pm

Taleb was on for an hour yesterday on the network Rick doesn’t like. There are a few videos, this one saying how he dislikes stocks but is forced to invest in them for return. He states in one video he is not a permabear. Another he discusses generally where he invests.


Taleb certainly doesn’t talk like a permabear, and he did blend in for a while on Wall Street. However, he also seems convinced that The System is vulnerable to a catastrophic jolt, the nature of which neither he nor anyone else can predict. Under the circumstances, I’d be interested to know what kind of investment portfolio he has assembled, since he’d be the first to admit that trying to create a defense against whatever is coming is futile. RA

Dave January 30, 2013, 12:48 am

He teaches Risk Engineering at NYU Polytechnic a few blocks from me. If I catch him at Starbucks, I’ll ask though you can call him to ask for a guest editorial which once he understands how well you’re prepping us for the Black Swan event, he should surely accept.

fallingman January 30, 2013, 2:29 am

He tells you clearly in his book.

He likes a barbell strategy that holds the lion’s share of the portfolio in T Bills or some other cash equivalent and he goes long low priced OTM options, expecting to lose money over most periods and mop up with outsized gains during periods when those pesky Black Swans appear.

He likes the asymmetrical bet where losses are small and potential payoffs are enormous. Indeed, exploiting this kind of asymmetry in all areas of life is really the theme of his new book, “Antifragile.”

He has also mentioned converting more cash to gold bullion. The man is no dope.

Jason January 29, 2013, 9:22 pm

Gary, here is some info to refute some of your hype. While I agree with you that the income disparity has grown egregiously, it is not the worst it has ever been. So just giving you what you asked for: documentation to refute your writings.'s_headed_back_to_the_robber-baron_era

Or the data from Piketty and Saez that indicate that disparity has become almost as acute as it was prior to the Great Depression.

gary leibowitz January 29, 2013, 10:03 pm

Thank you. One of the reports site the 1980’s as the start of this last round of wealth expansion, just as I have concluded also. As for the 1890’s, yes I was trying to exclude the robber-baron days in my analysis since I had assumed those days were behind us.

As for calling my views hype, I guess your comparison to the practices of the robber-barons isn’t considered extreme. It’s a matter of perspective. I would have thought we would never go back to such an era, and I do consider that time frame extreme.

But wait, we are still not at the crash level yet. The current data can indeed get even more skewed.

I do thank you for the corroborative articles you presented.

Robert January 29, 2013, 7:56 pm

My strategy of selling longer dated out of the money puts on smaller precious metals mining companies continues paying off (granted- we’re talking about picking up quarters on the sidewalk, but still – it beats tossing quarters into the wishing well 🙂 )

For whatever reason (and I don’t even care), very few of the option buyers ever exercise and put the shares to me as the option near expiration… I beleive this to be due to the fact that they don’t even own the shares to move. I think this entire sector is under the weight of an enormous paper and option short using borrowed shares and that the “real” share owners are simply standing pat.

The lower the prices in the sector go, the more willing I am to take the shares, and the more bold I am getting with my contracts.

Today I’m selling Almaden (AAU) sept 2013, 2.50 strikes at .35 a pop…

If the trade goes against me then sure, I’ll take Almaden shares at 2.50 apiece come September. Why not? Almaden is building a very nice royalty stream that looks very similar to SLW’s back in 2004.

This sector is behaving (and the charts reflect) a massive distribution trend, and yet the actual transfer of shares suggests otherwise (to me at least).

Either way- it’s a gravy train I intend to ride until the coal-car is empty…

Dale January 29, 2013, 7:07 pm

The real question for me, is what’s in the glass that you are enjoying with your Cohiba?


For a rare change, Dale, the half-full glass contained other than hemlock: Cognac distilled before I was born. RA

Chris T. January 29, 2013, 6:29 pm

” Hard to blame him. Who wants to hear about Dow 800 when the proletarian mind is fixated on Dow 15000?”

And there you have the m.o.:
fleecing the rubes, “investing for the long haul”.
The approach so well proven by Jeremy Siegel that it must be true.

“linear thinking”:
makes sense.
But at least quite a few of those in that linear thinking paradigm actually must know that things aint so.

I think instead they believe that they will be able to exit on time, get out before the last rube comes in.
Such thinking actually makes sense, because it works for “others”, it’s just not sensible to believe that the person having such thoughts is a member of “the others”.
That’s where the ego comes in.

ben January 29, 2013, 5:17 pm

Why would someone with a long term target of under 1000 on the Dow ever be invited back? It’s a waste of listeners’ time. I’m sure there’s was some curmudgeon out there who remembered Dow 40 in the midst of the Great Depression and lived in penury for decades shorting the market and waiting for Dow sub-100 again. Every time the market corrected 30% he would cackle with glee, but he still died broke.

The point of playng the market is to make money, not to be right for a brief period of time when a Black Swan event causes a market crash. Play the rises, play the falls, don’t marry a position, and be willing to rapidly switch sides.

As long as a rising market is politically expedient…which will be like forever…the pressure is to the upside. During the hyper-inflation in Germnay during the 1920s…stocks were an incredible investment. The perma-bear argument is perma-stupid.

Chris T. January 29, 2013, 6:38 pm


ref. my comment below as well:
you think that in the early 1920s, given the state of technology and communications, any sizeable number of people actually were able to MAKE MONEY in stocks when a cup of coffee doubled in price between the time you ordered and paid for it?


Your whole comment is only applicable to a trading mentality, and Rick well addresses that above.

But the average joe, without whose fleecing these shenanigans are only a circle-jerk of the Wall Street crowd, is not a trader, can not be a trader, and won’t be a trader.
He is only sucked in by the up, up, up model, (my Siegel comment), and by the need to try to find some way to get better returns than the 0.29% on a “safe” place to park money, savings accounts.

What about your comment as it applies to the Topix?
I am sure your average Japanese investor has something to say about that, of for the last 22+ years!

Profiting from the increase in asset appreciation via stocks, UNLIKE from their yields, is a zero sum game, and the statistics of the pre-inflation DJIA and its predecessors, prove that.

Michael Lewis’ comment in Liar’s poker, when the about the visit by the Wall Street types to the little savings bank in the south says it all.

gary leibowitz January 29, 2013, 4:55 pm

My linear thinking has gotten me in and out of the market many times. I am not the one that insists we will see a crash right-around-the-corner. I am not the one that dismisses or excuses this really big recovery of 4 plus years as an anomoly.

I don’t believe there has been one negative event that hasn’t been used here to anticipate a crash. Not one. I would call that linear thinking.

It works both ways.

Rick Ackerman January 29, 2013, 5:03 pm

You are that road through Kansas and Nebraska, Gary. Concerning how every “negative” has been used, I don’t recall any market crash scenarios based on Obama’s reelection — arguably the most negative event for America since the Vietnam War.

gary leibowitz January 29, 2013, 6:24 pm

I guess the 47 percent that would get abandoned under the Republican watch would really change the dynamics around for the good. You mentioned Obama, yet the first 4 years has to be a record recovery for any president in their first term. I know wall street certainly loves it.

Not one person on this board has explained away my assumptions on the following:
1 – The last 3 decades has accelerated the wealth shift as no other time in history, even as we try to recover from the worse economic debacle in centuries.
2 – The Republican party policy clearly benefits the people that least need it, all in the name of balancing the budget. State tax abandonment and increases sales tax; cut corporate taxes even more; cut social programs; to date we have the largest wealth growth on the top 20 percent then anytime in history.
3 – If we hadn’t had the huge government spending spree these last 3 decades we would already be in a deep depression.

I just do the math and it is glaring in it’s conclusions.

You might be upset with the out of control spending, but you should have been qustioning the wealth shift and it’s implications over the last 3 decades. Why is the huge imbalance not being addressed? Why start with the group that has been losing it’s purchasing power for so long? Doesn’t make sense.

As for crashs, the implication of Obama winning certainly made you conclude there would be no resolution to the fiscal cliff. In fact you anticipated such a crash becuase of his win.

Chris T. January 29, 2013, 6:43 pm


those 47 percent sure got abandone during the W years, when the elefant was rampant in the Congress.

I mean just look at government spending in the NON defense/DHS/etc sphere:
it went down.


redwilldanaher January 29, 2013, 8:19 pm

Hopefully Mario will show up to defend your latest round of madness.

You do no research. You dismiss or ignore it when it is presented to you in this forum.

That’s why no one will address your propaganda.

gary leibowitz January 29, 2013, 8:57 pm

Red, once again you don’t bother to show me where my historic data points are either wrong or misinterpreted. I use the 80’s as a benchmark simply becuase the expansion of the trend seemed to have started there.

Imagine a 4 fold return on wealth over the last 10 years for the well off, and the primary discussion is how to cut the over spending on social programs.

Every single time I show this data it’s as if this elephant is invisible. Krugman has it partially right. Cutting the middle class perks at a time like this will cause harm. He just doesn’t realize that no matter what is done, or not done, we will not bypass the consequences. It’s just a matter of when.

redwilldanaher January 29, 2013, 9:42 pm

Hey Gary, maybe it’s time for you to explain a few things. Several folks have recently expressed their disappointment with my responses to you.

Maybe you can help clear the air for them by addressing a few things.

1. Rick, not too long ago, almost banned you from the forum. Not what I would have done but it is his forum after all. Anyway, given that the host of this place completely lost his patience for your antics and has little regard for your comments, that I believe he thinks are “nonsense” for the most part, why do you stick around? I don’t mind that you do other than I hate to read your propaganda but still I wouldn’t bar you even if it were my forum. I would let people decide from themselves. I’m just curious why you do.

2. I’d also like you to inform us as to how many hours you’ve put in researching the underlying networks of fraud that support this market.

I will tell you that I’m well over 500 hours logged in that respect.

If you can provide legitimate answers to those questions I’ll start to leave a few bread crumbs for you with Rick’s blessing. Otherwise, I’m not going to do the work for you.

I can only conclude that you are either a propagandist, a blissfully ignorant masochist, or that have a few serious issues. It’s not hard to find the information and then do your own probability calculations as to what is more likely, the cons (official stories/surface level) or the alternative.

I am still amazed by the fact that you can deny that history is effectively a timeline of conspiracies but that the ones that are occurring now have and will have no impact on what we’re permitted to see.


fallingman January 29, 2013, 4:49 pm

Highly recommend “Antifragile,” the new book from Mr. Taleb.

It’s Copernican in its import.

If only he could write like you Rick.

Rick Ackerman January 29, 2013, 5:23 pm

Thanks, FM, but there’s nothing I could teach Taleb about good writing. Handling a weighty and original idea, he has used his extraordinary gifts to make ‘The Black Swan’ a page-turner.

fallingman January 29, 2013, 6:49 pm

Yeah, for sure. It’s a prodigious piece of work…and English is something like his third language, so I make allowances for the strange style, which has its own kind of charm.

The new book challenges the hell out of a whole lot of modern bulls**t conceits and offers a genuinely new way of looking at the world. The guy is an intellectual heavyweight and this is original thinking of the highest order. I consider it a work of singular importance in historical terms.

By the way, The Black Swan fits within the larger construct of “fragility/antifragility,” which might give you some idea of how big this work is.


By the way, for anyone reading this, Taleb’s “Fooled By Randomness” is a must read as well.

Despite his truly extraordinary gifts as a thinker, you’re still a better writer than he is. He could definitely learn some things from you, in the way that Newton could have learned some things from Voltaire.

redwilldanaher January 29, 2013, 4:42 pm

Nice job Rick. I like your perma-bear explanation as it seems impossible for so many of the proletariat to understand that you can hate an entirely fraud-based market and economy while simultaneously trading it successfully to the upside.

For those that haven’t been paying attention, this is what has been happening here and not for the first time.

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