Keeping a warm brain

We've been hit with some major winter weather AGAIN. Edmonton hit a new record low temperature yesterday, and for Calgary, we have -26C and a windchill of -35C. But the warming is in view by the weekend. I'm blaming it on all the AGW (Anthropogenic Global Warming) deniers and skeptics meeting NYC this week, they set this up. I'm certain of it (Second International Conference on Climate Change).

Market news is all about the rally we have underway. Cautious notes from some, bold statements from others. There is the appearance of less tolerance and more vociferous chatter of the success (or lack thereof) of recovery plans, bailouts, other acronym labels.

"Let’s get ready for the future, instead of bankrupting ourselves trying in vain to bring back an unsustainable past." Donald Ruffkin (via Barry H @ The Big Picture [Come on, Buffett!] - many thanks). This statement is to the point and well made. It follows the lines of so many others, very learned people, that can't figure out why this particular direction has been taken. Inasmuch as this post reveals a lot that makes sense and much that I agree with principally, it is the nature, the rant, the intense emotional under current that I am more curious about. The collective verbage being written has begun to develop an edge. An abruptness. Are we psychologically, as a collective, approaching some breaking point? The powers of mass psychology are well known. There are many reasons for our current world malaise, each fueled by some measure of mass psychology.

If so, then the view forward will be ever for interesting. There are several other "shoes to drop" - corporate earnings still have not collapsed. Commercial real estate devaluations and reduced occupancy. Credit card debt. Overcapacity in every sectors still remains. As an example of a still brewing storm, Eastern Europe.

"Moody’s, which triggered a storm of selloffs last month with a warning on banks exposed to Eastern Europe, called Tuesday for more differentiation of credit risks in the region, reports the WSJ. In a new report, Moody’s said risks were highest in economies that have experienced rapid domestic credit growth and those that may not be able to rely on external support. Romania, Bulgaria and Croatia, all rated Baa3, are particularly vulnerable to credit-rating downgrades, it said."

However, the message is not getting through. Recent reports from Ford stating that their solution (to the auto industry woes) includes incentives from government to the people to buy new cars. Oh Please! It is time to re-engineer everything. This is our opportunity to change what is done, by whom, how, where and when. The why is clear - our previous model of living was not sustainable. And I am NOT referring to the environment. I am referring to entitlement, debt, leverage, greed. I am talking about our "being". About finding a place that is more harmonic and driven by healthy mindful and meaningful choices. This is our opportunity for wholesale change. When, how much and how fast will we (need to) change?

Barry R. at The Big Picture wrote 5 Stages of Market Grief (January 7th, 2008) being 1. Denial; 2. Anger; 3. Bargaining; 4. Depression; and 5. Acceptance. As he points out in a followup, there have been a fluury of new and recent posts that are picking up on this theme. Is this a signal or an indicator of our status? As above, I believe we are moving through these states and Anger is rising. Keep watching. Keep reading. Keep learning.

UPDATE1: This is your brain. This is your brain on money Mr. Andrew Lo, director of the Massachusetts Institute of Technology's Laboratory for Financial Engineering has closely observed investor behaviour during the current crisis. So far, what he has seen confirms his view of how markets work. He seeks to bridge the divide between academics who believe in the rationality and efficiency of markets and the behaviourists who argue that psychology always prevails. This has led to a burgeoning field of neuroeconomics, a study of the interplay between rationality and emotional reaction. Most interesting to me - reference made to those with the rationality to make sound decisions at a time of high emotion will be the winners. And its taking MIT to figure that out? Maybe we're actually in more deep doodoo than I thought?