Denial Phase: Do Not Mess With the Wounded Bulls‏

NOTE: While this article applies to the Philippine setting, I posted it here because of the relevance of manias to the business cycles.

It would seem that market developments has reached a critical stage where one shouldn’t mess with the bull.  

Since the lows of January, the corresponding vertical price actions reveal that the August and January crashes has traumatically distressed and miffed the establishment bulls. 

From a psychological standpoint, these crashes have incited the bulls to indurate or to harden their positions. Such massive denial simply means that the establishment have only dug themselves a deeper hole. And such insight has been lucidly expressed through a series of violent price actions. 

From their perspective, the twin crashes have signified an anomaly: There is no stopping the stock market from perpetual ascension! And not only are stocks supposed to rise forever, these are to happen at fantastic rates as today. 

And because current price actions appear to have momentarily exculpated the establishment bulls, gloating, heckling, censorship and ostracization would represent a typical reaction to anyone who would question on their fortified convictions. 

This is the point where skeptics will not only be faced with social tensions; one may even lose friends or business, merely out of belief! Current denial phase represents even deeper convictions that during the pre-May 2013 and pre-April 2015 record. 

As I earlier noted, the PSE was not talking about new record highs, but was cheerleading the highs of the year. 

Yet the divisive and anti-social climate brought upon by asset bubbles through the central bank inflationism has vividly been articulated by no less than by self development author Robert Kiyosaki when he predicted the dotcom crash 

When my book "Rich Dad's Prophecy" was released in 2002, most financial newspapers and magazinestrashed it because I discussed a looming stock market crash.  

Canadian economist and diplomat John Kenneth Galbraith best described such phenomenon as a PROMIENT trait during the GRAND boom or the asset bubble that preceded the 1929 Great Depression (The Essential Galbraith p. 251-253) [bold mine] 

Although only a few observers have noted the vested interest in error that accompanies speculative euphoria, it is, nonetheless, an extremely plausible phenomenon. Those involved with the speculation are experiencing an increase in wealth — getting rich or being further enriched. No one wishes to believe that this is fortuitous or undeserved; all wish to think that it is the result of their own superior insight or intuition. The very increase in values thus captures the thoughts and minds of those being rewarded. Speculation buys up, in a very practical way, the intelligence of those involved 

This is particularly true of the first group noted above — those who are convinced that values are going up permanently and indefinitely. But the errors of vanity of those who think they will beat the speculative game are also thus reinforced. As long as they are in, they have a strong pecuniary commitment to belief in the unique personal intelligence that tells them there will be yet more. In the nineteenth century, one of the most astute observers of the euphoric episodes common to those years was Walter Bagehot, financial writer and early editor of The Economist. To him we are indebted for the observation that “all people are most credulous when they are most happy.” Strongly reinforcing the vested interest in euphoria is the condemnation that the reputable public and financial opinion directs at those who express doubt or dissent. It is said that they are unable, because of defective imagination or other mental inadequacy, to grasp the new and rewarding circumstances that sustain and secure the increase in values. 

The point is that in terms of psychology, vanity, ego and pride have always accompanied a financial euphoria. Again Mr. Galbraith (A Short History of Financial Euphoria p.18-19) 

In all speculative episodes there is always an element of pride in discovering what is seemingly new and greatly rewarding in the way of financial instrument or investment opportunity. The individual or institution that does so is thought to be wonderfully ahead of the mob. This insight is then confirmed as others rush to exploit their own, only slightly later vision. This perception of something new and exceptional rewards the ego of the participant, as it is expected also to reward his or her pocketbook. And for a while it does

 

  

The current denial phase ventilated as the current violent price response and the PSE’s announcement, in the context of Kubler Ross psychology (lowest window), simply means “disbelief” from the recent crashes, and “looking for evidence” to disprove such account weakness or a confirmation bias. 

The vehemence of denials reinforces the psychological perspective that current conditions are not only unsustainable but are bound to unravel soon