What a good day to start a financial journal. The biggest one day point drop in Dow history and the biggest percentage drop since ’87.

I’m not really sure how to go about this. Years ago, probably a dozen years ago, I kept a financial journal, and, as luck would have it, I was keeping that journal when the financial crisis happened. The purpose of the journal was to provide a structure for my thoughts while i tried to learn about stock investing. I was actively investing at the time. Definitely a penny ante player, but it was fun, I learned a hell of a lot. And i think the journal served its purpose. i had to think through my ideas, justify them enough to write them down. And I did pretty well in that period.

Then the crash came. i got out in time, made money on the upswing, got interested in other things and decided that the whole market was manipulated by the Fed and got out.

Here’s the thing, i wrote that old journal completely for myself and i can already tell that the knowledge that someone else might stumble on this blog has changed my tone slightly. So be it. I’m going to try it for a while and see how it goes, see if I can write in such a way that is useful to me even though it is public. But take that as a warning. I am writing for myself, writing for the value of putting thoughts into words, and if the syntax, grammar or anything else suffers as a result, so be that too.

Another thing, when i kept my earlier financial journal, i found that the effort bled away all of my ability to do any other kind of writing. So this may be a sporadic and limited exercise.

But with that introduction, here we are. The delicious taste of blood in the water. I’ve got a couple of ideas coming into this. Emerging markets were cheaper. At GMO their 7 year asset cvlass forecast estimated a 9% real annual return. So i want to start looking there.

Another idea came to me today. Sooner or later this panic will result in fiscal stimulus. Maybe it will be the next presidential administration. maybe this administration will somehow get its shit together. Who knows, but it is coming one way or another. Quite possibly, especially if it comes from this administration, it will be bungled, but the borrowing and spending will be there. Will the result be higher interest rates? Right now interest rates are crazily low, commodities are getting hammered, but i wonder. How will it be in two years? Will inflation finally start to run as a result of the borrowing for the fiscal stimulus? If and when that happens interest rates will rise. Three weeks ago an interest rate increasse would have been disasterous for the equity market, I’m sure it would be disasterous today as well. Guess a lot will depend on how low things go before they bottom out.

My sense is that the first real panic started today after Trump’s disasterous speech and the gradual penetration of the idea that this virus will spread with something like the pattern seen in Italy, only with less competent administration of tests. Not sure how much of that scenario is priced in.

Oh, before i leave today i want to record what has become my new way of understanding the stock market. It is, in fact, two market operating simultaneously, or, more accurately, aking tunrs. Most times the stock market is a Ponzi scheme. The new money replaces the old money and as long as the trend is up, almost everyone gets out happy. Nearly everything you read or see on television exist to perpetuate the myth that there is something fundamental behind the market moves. We know what those fundamentals are and they are not all that complicated. economic growth, productivity, interest rates, innovation, profit margins and so on. There are just enough of these factors to keep people guessing and to sustain the belief that the upward trend is somehow based on rational actors who understand the factors and make rational decuisions. As long as the trend is up, this myth survuves. But this is not actually the case. The market is going uop because it is going up. The old money gets out with a gain and the new money becmes the old money. Everybody is happy. That’s why it goes up.

The other market is a value market and it is short lived. Whenever, for whatever reason, the Ponzi scheme gets exposed and there is a crash, then the value investors come in. The crash is the separation bwteen the two markets. For the value guys, who are actually rational and always a little pessimistic, it only makes sense to buy whe3n the market is at much lower prices. So there is always a big disconnect between the Ponzi scheme and the value market. The crash is the process of the Ponzi scheme investors getting disillusioned. Capitulation happens when they finally give up. The floor is there when the value guys feel that there is value, which, of course, is always a moving target but tends to get lower as the crash also does real damage to the economy.

Right now i think we are in the middle of hat realignment.