Monday, May 16, 2011

A Blast From The Past

I have been re-reading Gustave LeBon's The Crowd, the 1895 classic on the psychology of herd ("crowd") behavior.  The French social psychologist was the first to scientifically and methodically study crowd behavior outside the criminal classes.

Here are a few bon mots:
  • Crowds amass mediocrity, not intelligence.
  • Compared to individual persons, crowds are always intellectually deficient.
  • Crowds cannot help but exhibit excessive credulity.
  • When in a crowd, an individual's faculties of observation and critical ability vanish.
  • Events witnessed by the largest number of people must be questioned most of all.
 I am sad to say that Hitler, Mussolini and Bernays (Freud's nephew) were fans of this book, putting it to ungodly and unhealthy use (Bernays convinced women to smoke).  Ah... propaganda, thy name is Herd.

And what do financial markets have to do with crowd behavior?  Well, actually, the proper question is: when do financial markets not have anything to do with crowd behavior?

Tuesday, May 3, 2011

The Land of "Miracles"

Greece... land of Pythagoras, Plato, Pericles - and more platitudes than you can shake a stick at. 

Nevertheless, here's one more from a Greek bank professional: Greece is the land of miracles.  (I'm certain he didn't quite mean it as a compliment).

To wit, ANYTHING can happen there. Here's a handy comparison from recent history.  
  • First, a current chart of the 5-year CDS (credit default swap) on Greek government bonds (click to enlarge).

 Greek CDS
  •  Second, a chart of what happened in the Greek stockmarket some 10 years ago.
Greek Share Prices 1997-1999

Get my point, via chart comparison?  The place is basically looney-tunes and CANNOT be analyzed or predicted in any rational, by-the-numbers method.  For clues, best dust off the psychotherapy manuals and be prepared for excess, negative AND positive.
  • Third, here's how the share bubble burst after the year 2000. The "miracle" of 1999 turned into dust shortly thereafter.

Now, given the excess of emotional swings apparent above, I wonder what may happen to Greek CDS prices in the not-so-distant future?