Monday, October 5, 2020

Quote of the Day: The Popular Mind

If I had a nickel for every time someone has asked me since the market recaptured, say, the first 50% of the Feb/March selloff how stock prices can so defy economic reality, well, yeah, lots of nickels...

The fact of the matter is, in terms of swift initial selloff, strong rally off the low, and time until the retest of that low or worse (if indeed a retest or worse occurs), this stock market of the worst (and/or the deepest) recession in nearly a century isn't all that unusual. What is unusual of course is the extent of the rebound off the low. 

While I can cite "stimulus" impulse, and a willingness to print and spend that knows no bounds (amazing the number of folks whom I know, and whose stuff I read, who seem to have no concept of "moral hazard" when it comes to what amounts to [to this point] the bailing out of hedge funds and private equity firms), in the end it's the phenomenon that explains all such occurrences since, frankly, the beginning of markets.

A phenomenon that Gustave Le Bon articulated so well in his 1895 classic absolute must-read book, The Crowd: A Study of the Popular Mind: 
"In a crowd every sentiment and act is contagious, and contagious to such a degree that an individual readily sacrifices his personal interest to the collective interest."
"It is not only by his acts that the individual in a crowd differs essentially from himself. Even before he has entirely lost his independence, his ideas and feelings have undergone a transformation, and the transformation is so profound as to change the miser into a spendthrift, the sceptic into a believer..."

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