Friday, October 10, 2008

Chicken Little Could be Right After All

There comes a moment in life when you cease believing. The total obliteration of trust as confidence and faith take flight. When that epiphanous moment arrives, nothing not even reassurances, persuasion or feeble attempts at restitution will sway your trust in your gut feelings that all things said and done, that ironclad belief that you harboured in something has been long been whittled away for good, shredded by the winds of despair. That your mind can no longer count on your heart to infuse it with the confidence to do something, anything and as the wall of trust splits asunder, whey-faced Lady Doubt flits wraithlike through the cracks of resolve, her train of agitation trailing in her ghostly wake. And slowly will she caress your thoughts in the arms of Squire Anxiety that soon you are convulsing with the pangs of Master Guilt as you slowly slide through the doorway of Mr Gloom into the lap of Monseiur Worry. As Messrs.Worry gnaws at the soul of Father Hope, unbeknownst you will awake within the vice-like grip of Lord Fear who having raped your Virgin Confidence will shove you into the waiting arms of Rascal Panic. And once Panic sets to work, the rest is Dame History undressing herself in your rear view mirror. To think, it all started with an illusion, a figment of the imagination, a sleight of mind fogging our senses:

Robert Shiller, an economist at Yale, puts it bluntly: The notion that you lose a pile of money whenever the stock market tanks is a "fallacy." He says the price of a stock has never been the same thing as money — it's simply the "best guess" of what the stock is worth.
"It's in people's minds," Shiller explains. "We're just recording a measure of what people think the stock market is worth. What the people who are willing to trade today — who are very, very few people — are actually trading at. So we're just extrapolating that and thinking, well, maybe that's what everyone thinks it's worth."Shiller uses the example of an appraiser who values a house at $350,000, a week after saying it was worth $400,000.
"In a sense, $50,000 just disappeared when he said that," he said. "But it's all in the mind."


But you really do lose real wealth in pursuit of that illusion! How? Lets say you take an inordinate fancy to a particular illusion that like the Siren of Yore draws your ship of Reason to her beguiling whispers of undreamed riches awaiting you yonder beyond the horizons of your immediate view. You have a flutter based on the premise that your investment today will harvest tomorrow's unseen wealth, that the 10000 you plonk down now for a ticket to the Bay of Wealth will alchemically morph into the 50000 awaiting you in Future Harbour. In other words, mortgaging present Certainty for the allure of the Unknown. And the sap of confidence that flows in your veins of steel is fortified by Miss Siren's seductive assurance that the Port of Fulfillment is just beyond that rocky cove. But lo behold, the cool breeze spikes a notch and soon a nasty gale is your sails' companion. Roiling the waters with his mighty breath, the tempest batters your senses numb as the waves crest your fragile bow. As your rudder of confidence breaks apart, you are left drifting in a sea of confusion. Blown by the minute to the rocks of doom, the darkened skies crisscrossed with flashes of doubt and echoing with rumbles of perdition, you are seized by the Hands of Fear and deposited into the clutches of panic. As Panic strangles the throat of Hope, you are compelled to steer your rudderless ship to safety and jettison your bundle of soaked paper (you bought with 10000) for whatever its worth (lets say 2000). So there you have it, a net loss of 10000- 2000 = 8000. 8K of unrealised potential, of unenjoyed satisfaction, of unsatiated desires, of unfulfilled joys. Multiply that by ten million (just an estimation) of your peers and you will see the extent of the economic shipwreck on Joe Public. And what if you had raised that 10K by mortgaging your castle, trying to leverage on its inflated value confident that the sky is not the limit. Imagine the consequences, when Chicken Little's prediction of the sky falling down does indeed come true....................get the drift?
Americans have much of their savings and their sense of wealth tied up in their homes.
When home prices start to fall, that feeling of wealth disappears. Whether they are really worse off today than than they were a month ago doesn't matter. What matters is that they feel poorer, which in turn leads them to spend less. From:
Revert: I think, i saw Chicken Little flying a coop in Canland the other day...blimey, i did!

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