How the "Curse of Goldilocks" struck again.
- Mar 25, 2005
- admin
- Investing
FROM “GOLDILOCKS” TO THE “THREE BEARS.”
From happiness to despair.
From hope to horror.
No, I’m not describing “Old Eurpoe’s” feelings after Bush named
Wolfie to lead the World Bank.
Nor am I talking about the utter shock in Bernie Ebbers’ eyes
after the jury decided that his former coke-snorting CFO was
more believable than he was.
Nope folks, what I happen to be talking about today is the sudden,
sharp turnaround in the stock market during the past two weeks.
Just two short weeks ago market “analysts” were predicting that
the Dow Jones Industrial Average was “poised” to break through the
“mental barrier” of 11,000.
Economists – including Woody Allen look-alike Lawrence Kudlow –
were proudly predicting a return to high growth and even higher
stock prices (he’s since changed his tune).
Even the seemingly new level for oil prices was shrugged off as
“inconsequential.”
And then all of a sudden it happened.
Faster than a speeding bullet.
More powerful than a locomotive.
What was it?
It was a word.
More specifically, it was a word that began to float off of the
lips of market observers and onto the pages of every business
daily in the country.
A word that hasn’t been uttered since the heady days of the
Roaring 90’s when new Internet Kings were being crowned
seemingly every day.
A word you haven’t heard since your sons college roommate pulled
into your driveway in the brand new Ferrari he bought when
his website went public.
That’s right folks – Larry Kudlow and dozens like him
were proud to proclaim that the “Goldilocks Economy” was back.
What exactly is the “Goldilocks Economy” you ask?
To answer that question I must digress to the fairy tales
of your childhood.
Once upon a time there was a little girl named Goldilocks.
She went for a walk in the forest.
Pretty soon, she came upon a house.
She knocked and, when no one answered, she walked right in.
At the table in the kitchen, there were three bowls of porridge.
Goldilocks was hungry.
She tasted the porridge from the first bowl. “This porridge
is too hot!” she exclaimed.
So, she tasted the porridge from the second bowl. “This
porridge is too cold,” she said
So, she tasted the last bowl of porridge. “Ahhh, this
porridge is just right,” she said happily and she
ate it all up.
And there you have it:
Wall Street – the collective conscience of every entertaining
Kudlow-style trend follower – began to believe that
the U.S. economy was beginning to hit the right balance
between growth and inflation, spending and saving.
And for you folks playing along at home, that means that
Wall Street was starting to think that the stock market
was, like Goldieís Porridge, ìJust Right.î
So what changed during the past two weeks?
How could the DOW go from “breaking through 11,000” to
flopping like a fish around 10,450, a drop of 5% in two
weeks?
It was the “Curse of Goldilocks.”
Yes, you heard me correctly – the “Curse of Goldilocks.”
You see, what the fairy tale didn’t mention to you was that
Goldilocks was a very particular type of person.
You might even call her a researcher. A fact finder.
A sleuth. Or an analyst.
And what Goldilocks hated more than anything was when
people made decisions without looking at the facts.
Indeed, Goldilocks looked beneath the surface of the
porridge.
That’s why she was so darn cool.
And that’s the exact opposite of what Wall Street has been
doing during the past 6 months.
And right there is the difference between professionals
and amateurs.
Between leaders and followers.
Between Tycoon Readers and other investors.
Tycoon Readers look BENEATH the surface to seperate
fact from fiction.
We’re are more interested in what is going on BEHIND
the corner than whats in front of it.
That’s because Tycoon Readers don’t view themselves as
security analyts.
We view ourselves as INSECURITY ANALYSTS.
Whenever we hear people chanting about the return of the
Goldilocks economy, we think back to 2000 – the
last time we heard such nonsense.
And just like then we have an overvalued stock market.
An overvalued housing market. A declining dollar.
And don’t forget the grandaddy of them all – rising
interest rates.
Yes ladies and gentlemen, the Curse of Goldilocks has
struck again.
And the very next time you hear that word chanted by anybody,
sell your stocks, gas up the HUMMER and head for the hills.
That’s because the Curse of Goldilocks will strike again –
and stock prices are sure to tank.
Remember, you are what you read.
–Dylan Jovine