The Evil Eye, Virtual Crowds & The One

Halloween finds us contemplating a ghoulish spectacle: the smoldering ruins of a portfolio laid low by Bear Market forces of once-in-a-generation magnitude, and an electorate seemingly determined to plunge the nation into a two to four year bout with that retrograde conceit that calls itself Progressivism. These two developments have something in common, something besides making some of us want to curl up in a safe corner and wait for the dry heaves to subside. They were helped along by what seems to have become the Ubiquitous Evil Eye.

Actually, as painful as it is to see how far some of our stocks have fallen from where we thought they were really, really cheap and so doubled (or tripled) down, the way the Market has been acting these past few days is quite encouraging. I am seeing the return of at least a modicum of confidence on the part of bargain hunters, and a diminution of the “get me out!!” liquidation that has taken so many stocks to such unbelievable discounts to their intrinsic worth. It was encouraging to see the Dow Industrials and the S&P 500 test the 10/10/08 intraday lows so successfully on Monday, trading to within 3.3% and 0.8% of the major low before commencing a rally of nearly 11% through Thursday. Whereas the weeks leading up to this “test” have been characterized by waves of liquidation selling being interrupted by feeble recoveries, and dramatic losses of heart (as in last minutes-of-the-day meltdowns), whatever ongoing selling that has continued is now being met with buying interest of at least equal vigor. It also matters that the short side is proving to be a much more perilous place to place one’s bets, and that the vast herd of hedge hogs, which grew so fat feasting on easy money, is well along in the process of being thinned out down to a level the range can actually support. The Market is acting as if the “urge to purge” has spent its fury. I can see the possibility of another test of the low, which is now defined by 10/10 and 10/27, if the election ends up being close and contested enough to unleash another wave of uncertainty, but otherwise I strongly suspect that prevailing bias is in the process of turning upward.

It has been my experience that election outcomes tend to get discounted well in advance, and that there is not much value in trying to handicap likely Market trends based on them. Elections, or rather, the campaigns leading up to them, are quirky things. It is best to keep in mind the fortunes of war. As in war, unpredictable things happen. As the loss of a nail caused the horse to lose its shoe, and so on, tiny, quirky events can change things dramatically, shifting the final score the way an aberrant bounce of a football late in close game might. That said, I have a distinct recollection of the Market figuring it out last time, in 2004. The trend shifted from a weak drift to a distinct upward bias on the morning after the Democratic Convention tried to pass their man off as a war hero. I remember thinking that this charade, so unlike the demeanor of any other warrior I have ever known or met, was simply not going to fly. The Market did a very good job of discounting a victory by the incumbent, completely neutralizing what we as individuals saw as a great source of uncertainty. The remainder of 2004 was very much a validation of the maxim “Buy the rumor, sell the news”.

As I ponder the questions of why this Market got as whacked out as it did, why 2008 turned into the downturn of a lifetime, and why we are facing an election outcome favoring vague promises about “hope” and “change” over proven leadership in facing the world’s evils for what they are, I find a common thread of understanding. It is the ubiquity of that Evil Eye, that flat panel of light that shouts out at us everywhere we go unless we take deliberate steps to avoid it. It seems that most people have become overwhelmingly dependent on visual stimuli, unable to suffer more than a few minutes without soaking up a dose of whatever it is that comes to us out of a big screen TV or a monitor. I, for one, have chosen to be an exception. For the last decade or so, the television in my home has been used as a monitor to play tapes, and more recently, DVDs from Netflix. Consequently, not being as inured to the bombardment as I imagine most people to be, I find TV to be unbearably shrill, an annoying and obtrusive absurdity. One of the marks of being a mature person is recognizing that there are some people whose demeanor or character has some negative aspect that we do well to avoid, lest something “rub off”. It is a recognition that we are more malleable than we would like to think, and that attitude is contagious. Can nonstop interaction with digital personages, especially given the “amplification” that seems to be intended for dramatic effect (watch the faces with the sound off, as I have founded myself doing on many an airplane, to see what I mean) be any better for you? I think not!

When I am asked about how this Market downturn differs from 1987, one of the first things that comes to mind is that back then, we only had a handful of channels to choose from. People who owned stocks were plenty scared, but the fear mongers could not ply the multitudinous digital channels to seek them out and agitate them even further. You would find it instructive to compare the Wall Street Week episode from that week in October 1987, which included the reflections of Sir John Templeton, (available on You Tube) with what we are subjected to today if we find ourselves in the presence of a TV tuned to a financial or “news” channel. And how unlikely is that? Go to a tennis club to burn off some stress by whacking away at some fuzzy balls, and there’s the Evil Eye, filling the lobby with its prognostications of doom. Head out for an offbeat lunch, ethnic fare tucked away in a strip mall, and that same eye is staring at you, with its inducements to try a new kind of birth control or asthma relief or the services of some pit bull of an ambulance chaser. In the mall, in the airport, in the doctor’s office, it is as if it simply has to be there for us. But it doesn’t, really.

The blessings of technical progress are not unalloyed with invidious consequences. Besides facilitating a bombardment of information that if allowed to will overwhelm one’s capacity for critical thought (or is just me, with my underwhelming-to-begin-with capacity?), the tsunami of digital content, however it is delivered, also seems to have the ability to create virtual crowds. It was instructive to read Fouad Ajami’s 10/30 editorial in the WSJ about the role of crowds in this election. He spoke to literal masses of people in close physical proximity, but thanks to big screen TV, wall-to-wall coverage by far too many “news” channels, and Web communities where like-minded individuals can go and reinforce each other into a frenzy, we seem to have arrived in the Age of the Digital Crowd. That the idea of Crowd has taken on a new and more pervasive meaning is not the only reason that this Market downturn got so out of hand , but it is a big part of the equation. Likewise, the candidate leading in the polls, despite many lingering questions about who he really is, where he actually came from, who is putting up all that money for him and what he really believes, is perfect for the part if one is trying to cast the One who will lead a Digital Crowd.

My guess is that while some fear as to the outcome of the election is in order, the worst fears are all but certainly overblown. (They usually are, but good grief, we have been watching Worst Case go to Even Worse for months now already!) Le Bon commented that crowds lose their heads as one, and then men regain their senses one at a time. The crowd whose members have been allowing their fears to add fury to the forced selling of others is already starting to thin out. Let’s assume for a moment that the polls, though persistently problematic, are “close enough” this time and the front runner wins. The Crowd that has projected their hopes for nebulous change onto the cipher that is BO will inevitably dissipate as each individual comes to the realization that The One is not who or what they allowed themselves to believe he was. Scandal will linger past Election Day, much like Whitewater did twelve years ago, like so much sand poured into the gas tank of the Engine of Change. Bereft of a promising abstraction, as opposed to a very human leader, to focus them, the litany of grievances that defines the Democratic Party will succumb to centrifugal forces and start to come asunder. Meanwhile, that 40%+ of the electorate that is not on board with Progressive ideology has gotten its wake up call. A Progressive president will find himself between the rock of multifarious ideologues for whom he cannot move fast enough and the hard place of tens of millions who will be agitated by all but the most subtle moves down the Progressive path. And these are the people who are much more likely than those on the other side of the cultural divide to reproduce, to volunteer their time and money, to serve in the military or to own guns and know how to use them. Some of them, when faced with dire enough circumstances, have even been known to call on aid of the Almighty, the One who not only made them all but has also seen it all, and who answers such calls in ways that are sometimes later than we would wish, often beyond our understanding, but always to suit His good purposes.

I see a slowly clearing financial storm, followed by economic recovery in fits and starts, helped along by the same sort of political gridlock that made the last years of the Twentieth Century a relatively benign era for investors. The years ahead might see a quickening of the entropic forces that send all human edifices down the way of all flesh, but then again, they might not. In any case, it looks like 2009 will be a great year to have owned stocks.