Reply #40: The Big Fallacy

[54anickel]

Keep Shrub's push for the "ownership society" as you read this article.

http://www.gold-eagle.com/editorials_04/tacinv083004.html

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Let's start off by looking at a predator in the wild, a Jaguar. When there is plenty of food, all the Jaguars can feed well and relax as there is plenty to go around. If one looks at the situation from the prey’s side, it seems unfair. The poor deer is just trying to get a drink of water or eat some grass, but each time it has to play Russian roulette with its life. If the jaguar were eliminated from the equation, then you would have too many deer and this would result in over grazing and a severe constriction of the existing food supplies. So the Jaguar is needed to maintain the equilibrium. If suddenly the number of jaguars goes up, then we have another imbalance and the existing food supply is now threatened (not enough deer to feed all the jaguars). Once again nature intervenes and the weakest jaguars start to die off; only the strong ones remain.

Applying the above analogy to the markets, we get the following:

The masses are the Deer; they just want to find a way to grow fat without doing much. Even worse, they want to build lots of money for a time in their lives when they least need it. This period is called retirement. What is extremely amusing is that everything is sacrificed, good health, youth, pleasures etc. to put money aside for a time when practically nothing works as well as it once used to. If the masses are so happy to kill themselves slowly, why should it be terrible when the predators come in and do the same job but 100 times faster?

The Jaguars represent a few sophisticated investors, big brokerage firm’s etc. Their function is to wait and watch the deer (masses) get nice and fat; then they strike their fatal blow. In this case, the markets crash when the masses are net long or suddenly take off when the masses are net short.

Then you get times when the food supply is thin and so even the jaguars are now threatened as they start to turn on each other to survive. (By the way, this is what has been going on in the markets for the last few months). This is when you see big companies go down (Long Term Investment Capital is an example.) and many big investors suddenly find themselves penniless. The jaguars that survive this period of hardship emerge even stronger, leaner and will feed 10 times as much as soon as the supply of food is replenished to equilibrium levels.

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