Paul B. Farrell: “Stock roller coaster set for sickening drop” – Market Watch

Posted on :Aug 05, 2013

By: Paul B. Farrell

Market Watch

August 5, 2013

SAN LUIS OBISPO, Calif. (MarketWatch) — Love roller coasters? Who doesn’t, right. Everybody does. We’re thrill-seekers. Makes you feel like a kid again.

The Kingda Ka roller coaster.

Well, folks, you’re on the biggest ride in the world. Bigger than Six Flags Kingda Ka. And it’s going higher. Maybe a lot higher. USA Today’s hinting at 2,000 for the S&P 500 by 2014. OK, so Bond King Bill Gross tells us the 30-year bond-market cycle just peaked, back on April 29. But so what, he’s been wrong before.

This is a red hot bull rally. Chugging along nicely since March 2009. Got real legs. Makes you feel it can go on forever the way it just keeps laughing at doomsdayers like Faber, Stockman, Prechter, even Gross.

So you just kept climbing the great wall of worry. Climbing higher, we just love counting our winnings, trading, investing, adding new money, having a ball … up, up and away. Yes, investing’s a bit like going to Disneyland, any theme park, you go looking for thrills, chills and lotsa fun riding that roller coaster. Again and again.

Love the thrills and chills, exciting rides, the screaming, wind in your face, gripping the crash bar tight. The twists, spins, jerking wildly. Your heart starts racing just thinking about driving to the park, waiting in line. Breathing accelerates. You edge forward.

You’ve been here before. Love it. Wait in line. Anticipation builds as you share experiences about past rides, other parks, with wide-eyed kids, smiling friends, the folks in line. Yes, just thinking about roller coasters is thrilling.

Suddenly, you’re strapped, the first jolt, the hook engages. Then the creaking as the chains start pulling you up, up. Last-minute warnings of the risks. Then the clanking as your car is slowly pulled up the steep climb to the first peak.

Roller-coaster thrills and chills: Brains love it, never want to get off!

Suddenly, you’re on top, free, a winner, for a moment suspended in air. You’re at the top, yes, 1,700 in the S&P, 456 feet on Kingda Ka. Then in 3.5 brief seconds rocketing down to speeds of 128 mph on a 418 foot descent.

Yes, psychologically riding a roller coaster is like investing … both flood your brain with endorphins, adrenaline, Red-Bull jolts … once again, you’re optimistic, climbing further up that wall of worry … reinforcing feelings of power … maybe a minute up to the first peak on a roller coaster … compared to the long glacial 52 months since the last bear-market bottom … enough dips, twists, turns and returns to keep you thrilled and chilled … keep you in the game, playing … wanting more, more, more, as the excitement repeats, time passes.

You never want to stop … you’re feeding on the thrills, setbacks, challenges, new surges … then you actually begin believing it will never stop … S&P 2,000 next … you’re a winner, you picked right as the market more than doubled since 2009 … you’re convinced you really know the game now, after all these months learning the lessons, the head-fakes, picking the right stocks, sensing the cycles … you got the edge, a savvy investor beating the market, richer, smarter … you’re at the top of your game.

Then, a sudden, unexpected, something, catches you by surprise.

Something bad will happen

Something out of left field, the unexpected. You’re riding another cycle up, up, betting on yet another record. Then it hits. Jolts you. Turmoil. Knocks you off your game. You faintly recall something Wharton School Economics Prof. Jeremy Siegel said in his classic “Stocks for the Long Run,” something about researching two centuries of ”Big Turns” in America’s markets … and learning that 75% of the time there is no rational reason for a collapse, “Big Turn,” black swan … they just happen because markets are fickle like that.

As your buddies in the locker room might put it, you get caught with your pants down.

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