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Hmmm 10 Jun 2012

Hmmm 10 Jun 2012

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Published by: zerohedge on Jun 10, 2012
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A walk around the fringes of nance
10 June 2012
For A 
Subscription to Tings Tat Make You Go Hmmm..... click 
“Drilled in my head What does it meanNumbCan’tFeelOpen woundsNever healConditioned to react Without thought Without tactBleedingI sense no pain”
“Te problem with socialism is thateventually you run out of otherpeople’s money
Margaret hatcher
“What is being requested is nancial assistance.It has nothing to do with a rescue”
Luis de Guindos,
Spanish Finance Minister 
10 June 2012
Sometimes the stars
align.The beaufully bearded gen
tleman on the le was born
o Sptmbr 14, 1849 at
Rayazan, in Central Russiato a village priest calledPeter Dmitrievich Pav
lov. Aer being educat
ed at the church school,Ivan Petrovich Pavlov en
tered the theologicalseminary, desned
to follow his fa-thr ito a rli-
gious career, but,inspired by the ideasof D.I. Pisarev—Rus
-sia’s pr-mit
literary cric of the 1860s—andI.M. Sechenov, thefather of Russian Physiology, the youngman turned his back on the church and decidedthat mathemacs and science were his calling.He became fascinated with physiology and dem
onstrated a signicant aptude for the scienceof the funcon of living systems—so much so
that h was awardd a gold mdal ad a fllow-
ship by the Academy of Medical Surgery wherehe conducted research under the famous Rus
sian Clinician S. P. Botkin.
I 1890 Pavlov was appoitd Profssor of Phar-
macology at the Military Medical Academy andve years later he was appointed to the then va
cant Chair of Physiology, which he held ll 1925.It was during this me that Pavlov conducted astudy that would become famous the world over
ad lvat him to th raks of thos rar m
and women for whom a new adjecve is coined:
Pavlovian [p
n], adj 
1. (Psychology) of or relang to the work of Ivan Pavlov (1849-1936), the Russian physi 
ologist 2. (Psychology) (of a reacon or response)automac; involuntary 
Pavlov’s experiment was in what became knownas Classical (or Pavlovian) Condioning:
(Wikipedia): Classical condioning (alsoPavlovian condioning or respondent con
dioning) is a form of learning in which onesmulus, the condioned smulus or CS,comes to signal the occurrence of a second smulus, the uncondioned smulus or US.The US is usually a biologically signicant smulus such as food or pain that elicits aresponse from the start; this is called the un
condioned response or UR. The CS usually  produces no parcular response at rst, but aer condioning it elicits the condioned response or CR. Classical condioning diers from operant or instrumental condioning,in which behavior emied by the organismis strengthened or weakened by its conse
quences (e.g. reward or punishment).Condioning is usually done by pairing thetwo smuli, as in Pavlov’s classic experi 
ments. Pavlov presented dogs with a ringingbell (CS) followed by food (US). The food (US)elicited salivaon (UR), and aer repeated bell-food pairings the bell also caused thedogs to salivate (CR).
In short, by associang the sound of a ringingbell with the appearance of food, Pavlov condi
oned dogs to salivate merely at the sound of the bell.For many years, this classical condioning hasbeen prevalent across nancial markets theworld over but, while its prevalence cannot be
dobtd, it has rmaid obtrsiv for o
reason and one reason only—it has worked al
most awlessly. On Wall Street, however, no suc
cessful idea was ever an orphan and so classicalcondioning’s fruits were passed o as thoseof heightened intellect amongst the great andgood of the nancial world.This classical condioning can be broken downinto a grid which I will simplify enormously forthe purposes of our discussion today:
10 June 2012
Over the last 27 years of watching the techno
logical means of delivering nancial informaonimprove in both quality and speed, one thinghas remained constant and that is the Pavlovianreacon of markets to various economic condi
ons, data releases, natural disasters and, lately,Black Swans.When the economy is booming and greed is inthe ascendancy it is all about making the bigkilling. Equies and commodies are the onlygames in town. It is ‘Risk On’.When the tables are turned and we nd fear and
loathig i th air amidst wak growth, th o-
body wants to knowabout anything butthe safety of bondsand precious metals.But market ‘reac
ons’ are strangebirds indeed.Think about it: on anindividual basis, if a payrolls number (subjectto all kinds of aer-the-fact revisions) misses,what do people do? They ‘sell the ‘equity mar
ket’ and they buy the ‘bond market’? Why? Isit because at that precise moment the world issuddenly worse than it was two seconds earlier?Is it because they have taken their me to lookinto the report, analyze the various metrics thatmake up the headline number and decide upona course of appropriate acon? No. They ‘sell’and ‘buy’ the respecve ‘markets’ because thatis what they have been condioned to do andthat is what they subconsciouslyknow that everybody else hasbeen condioned to do’ (thoughI will concede that anyone posi
oning themselves ahead of anumber in ancipaon of a mar
ket reacon to a specic numberand geng it wrong has a validreason to move swily).If payroll numbers are down,
dos that ma Johso & Joh-so is
worth lss? If it isth bgiig of a log ad larg
increase in unemployment, perhaps, but selling‘the market’ on a bad number is a Pavlovian re
sponse.Selling ‘the market’ on bad news for a parcularasset class is the expected reacon and so thedesire to either conform with the pack or, morelikely, to try and get ahead of it, drives an instantinvestment ‘decision’ and, in my experience, thewords ‘instant’ and ‘investment’ are two of themost mutually exclusive terms in the English lan
guage and ought to remain so.
Te events of 
2008 will hav a last-
ing eect on the world for many years to comeand the severe dislocaons that were seen a
mr 44 moths ago will rvrbrat far lo-
ger than I suspect many realize—in fact, a goodnumber of market parcipants seem to believethat 2008 is ‘over’ and that it is all behind us.
nothig, ad I
nothing, could be furtherfrom the truth (except perhaps “2012 WorldChampion New York Mets”).Right now, the world is undergoing a crisis thelike of which hasn’t been seen since the GreatDepression. Do NOT let the absence of longlines of elegantly-clothed and behaed men andwomen queuing for soup fool you. The world—your world—has changed.And yet.....Like Banquo’s Ghost, the spectre of a terriblecollapse of a kind never before seen in modern
Equies Commodies
Weak Growth
Strong Growth
Do NO let the absence o long lines o elegantly-clothed and behatted men and womenqueuing or soup ool you.Te world—your world—haschanged.

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