The End of the World (Maybe)

by JDH on October 24, 2009

As we approach the end of the world (at the risk of burying the lead, more about that in a minute), let me start by complimenting you.

There was a lot of excellent discussion over on the Buy High Sell Higher Forum this week. Don’t believe me? Pick a spot and start reading; for example, here’s the thread on the October 2009 Stock Market. We don’t all agree, but everyone has contributed well reasoned arguments, and some cool charts. A few months ago the Forum was beginning to degenerate into a bunch of nonsense, political commentary, and generally useless information. Spam was also a problem. I’ve tightened the spam filters, and you have all stepped your game up and posted some very useful information.

Well done. I’m proud of all of you. (If you can all resist the compulsion to comment on Obama, we will all be fine).

I wish I had something intelligent to contribute, but alas it would appear that you are smarter than I am, so all I can offer this week are some anagrams (where you switch letters around to make new words).

Like “yeah, we are screwed” becomes “Raceways weeder, eh?”

Or “Buy High Sell Higher”, when re-arranged, becomes “Beer High Hugs Hilly”.

Okay, so it doesn’t make any sense. (Try it yourself; go to this anagram generator and type in your name, and see what words you can create).

No, I have nothing useful to contribute this week, so all I can comment on is wild speculation that the world is coming to the end.

Specifically, let me comment on the work of George Ure, who writes the six days per week free Urban Survival blog, and the once a week $40 per year subscription Peoplenomics newsletter. George is an interesting guy. He’s an MBA (I won’t hold that against him), and he’s 60+ years old, so he’s been around a while. He is of the view that government intervention has not been a positive development for the human race.

So far, so good. Here’s where it gets interesting. George is loosely affiliated with the the guy who runs the Half Past Human web site. They specialize in “predictive linguistics”, which is a theory that says that changes in language tend to precede changes in reality. They use massive computers to scan I assume billions of pages on the internet to see what people are talking about, and then use that data to predict the future. Their method captures changes in language patterns on the internet. This aggregated data is then processed with software to determine various key words, which they interpret in a predictive fashion.

On a basic level, this makes sense. As I write this today the weather in my corner of Southern Ontario is rainy, windy, cold and generally miserable. From that you can predict that if I was to go outside, I would be cold, wet and miserable.

They believe they can predict other things by reading what words and emotions people are using on internet discussion boards and other places. If everyone is using words like “depressing” to describe our current economy, they predict that the economy will continue to be depressed. Of course I’m over simplifying, but you get the idea.

Every month or two the Half Past Human web site releases a “Shape of Things to Come” report, which is a summary of the language they are picking up on the internet, and their interpretations for what it means. For many, many months these reports have been predicting an “emotional turning” around October 25 and 26, 2009. They are predicting that as a collective group, humanity will see a build up in emotional tension.

What would cause a build up in emotional tension? No-one knows. The speculation is that it could be something like a big earthquake, or terrorist attack, or Israel attacking Iran, or even something as mundane as a top in the stock market, or a sudden collapse of the U.S. dollar.

Do I believe that as human we can sense the future? I don’t think we can sense the future; I think we can create the future, at least for ourselves.

I have created my future. I went to university, and as a result I have a good job. If I did not get an education, and if I did not work hard, I would not have created the future for myself that I did. I have other powers to predict the future. I predict that if I hit my hand with a hammer, I will break my hand. I predict that if I go outside without a coat on a day like today, I will catch cold. These powers of prediction are common to all humans, because we use our past experiences to predict the results of our current actions on future events. So yes, on a limited level we can sense the future, because we create it.

However, do I believe that predictive linguistics can be used to predict earthquakes? No, I don’t believe that. That seems a little far out to me, since I can’t fathom how my actions will cause an earthquake.

What about changes in the stock market? Can we sense that? That’s a more difficult question to answer, since obviously if we were all to decide to sell today, that would crash the market, so on that basis we can predict the future.

So, am I worried about the world ending on October 25 or 26? (Okay, I’m exaggerating; they aren’t predicting the end of the world, just a heating up of the mess we are in, but it makes for more interesting reading if I phrase it as the end of the world). To answer the question, no, I am not worried about the end of the world. I plan to watch some football games on Sunday afternoon, and I plan to go to work on Monday, so I assume life will go on.

I’m not terribly worried because I have followed the Half Past Human predictions for a while, and based on my recollection most of the predictions end up being wrong. Earlier this year they were predicting the “summer of hell.” In fact, the summer was good. The stock market was up. All was well. They have a history of other predictions not working out as well either. They might be correct this time; ask me next week and I’ll tell you for sure.

Okay, you ask, so why am I wasting your time describing the predictions of a possible nut, if I don’t think they will come true?

Two reasons: first, you guys did such a good job this week posting interesting perspectives on the Forum, so I wanted to give you something interesting to ponder, even if it is crazy.

Second, while I can’t wrap my head around the idea that we humans can see the future, I do agree with their general conclusion that we are in a mess. Government spending is way out of control. Unemployment is at very high levels. The only life we have seen in consumer spending (cash for clunkers) and the markets is due largely to government spending. Over the medium term government can’t spend our way out of this mess, so I am a pessimist.

Earnings announced this week for many companies were very good. But, and it’s a big but, most of the improvement is not due to revenue growth; it’s due to cost cutting. You can’t grow earnings long term by cutting costs, so the bump we’ve had over the last few months won’t last forever.

Last week my commentary was called: Dow 10,000: It Was Fun While it Lasted. Will we see 10,000 again this week? Perhaps, but as of today we are below 10,000, again, and I don’t like the look of the near future.

Full disclosure: I have been a pessimist all the way up during the run we’ve had since March. I’ve been wrong all the way up. I may still be wrong, but I can only call them as I see them. And I don’t like what I see.

So, I continue to be 15% invested in gold and silver stocks, and 83% in cash. The other 2%?

This week I took a flyer and bought some puts. If the world does end tomorrow, I’d like to have some insurance. (Yes, I know, if the world ends I won’t be able to collect on my insurance, but I digress).

On Thursday I bought some puts on the S&P 500 Index. I bought the November 925 puts. I paid $1.35. After I bought them the market went up, so on Friday I averaged down and bought more for 95 cents. So I now own a bunch at an average cost of $1.15. The market fell on Friday, so the last trade on Friday was at $1.45. Not bad, a 26% profit in one day, had I sold, which I haven’t.

If the world doesn’t end, I’ll put in a sell order next week, take my money back, hopefully at a profit, and be done with it. I’m only playing with pennies, so either way it won’t matter.

I still expect another down tick, and that’s when my puts will be worth more, and I will be able to deploy my cash for the next leg up.

Those are my thoughts. If the world doesn’t end, I look forward to being further enlightened by your thoughts on the Buy High Sell Higher Forum this week.

Until next week.

I hope.

{ 0 comments… add one now }