Friday, May 13, 2005

old data, and a fad's resilience

I have a confession to make, I collect books on finance written in the time period of the last depression. Before, during and just as it was ending. What brought this to mind is Bob Prechter has written a piece in the pay section of his site, "The stock market is not physics." He lays out how dangerous it has been to just project trends to guess the future. As he said a proper answer when asked about the future is usually "I don't know."

One of my favorite books was written in 1935 by the American Institute of banking, "Corporation Finance and Investments, Investments II" The forward says, "Investments II seeks to present the lessons learned from the financial errors of the period before 1929."

What I love is the centerfold. A meticulously drawn, 6 fold chart, proving the only proper investment for serious money managers is in.... drum roll please,,,, railroad bonds. "As a result of the depression of 1920 the banks of this country learned to place the basis of their commercial credit analysis on a scientific basis." The banks were "scientific" prior to 1929, and had the recently created, private, scientific assistance of the Federal Reserve there to help them. I would note that scientific seems to be a word associated with depression; just as Federal Reserve is associated with debased currency. Before we got 'scientific' we had short, severe 'panics' mainly effecting the finance sector, not depressions effecting the whole economy; and the dollar's value was the same after the panic as when the panic started.

And now, having said how stupid it is to project the future, I'll take a shot. I have a bit of long term history to guide me. As Mark Twain said, history does not repeat, it rhymes. Projecting the future from the recent past is lazy and crazy; but recognizing patterns in history may provide a nice, vague, clue.

We have just finishing a historic raise in indebtedness and the seeking of instant gratification. We are entering the next depression that may be greater than the last depression. And so I will take a shot at the question foremost in all of your minds.

What will happen to poker?

Poker has been a fad borne of liquidity, meaning easy money, and of the wonderful exuberance at the peak of the markets. Yes, poker will survive. No it's wave will not crest to die on the beach. But like in the panics and depressions of the past, the arrogance and hubris of our age will vanish as society puts on a veneer of respectability. Our games will once again be relegated to back rooms.

When will this happen? The only proper answer is, I don't know.


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