Question: I once remember you stating a
paradox of human behavior that can exist, and forgive me if I don't word it
correctly, but I believe it was around the time of when oil first starting
going over $60 a barrel [in 2005]. You
mentioned that people's habits of buying SUVs hadn't changed, and paradoxically
had increased, that during poor economic times, people sometime buy even more
expensive items or waste their money in a more egregious way - does this ring a
bell?
Answer: It sounds like an
observation I made many years ago, and yes, I still believe it still holds
true. An example of that would be the nationwide mini gambling mania
during the Great Recession of 2009-2010. You may recall that there were a
lot of “Internet cafes” creeping up everywhere in just about every city.
These were actually casinos where people could gamble at video terminals
24 hours a day, 7 days a week. Many of them were jobless and really
couldn't afford to gamble, but they did it anyway.
I think it was Bob Prechter of
Elliott Wave fame who first noted that gambling crazes are actually most common
in the early stages of bear markets/recessions. He explained that while
stock speculation is all the rage in bull markets, people also like to gamble
away their money in bear markets since the primary purpose of the bear is to
destroy capital. Plus, people still have the speculative impulse in the
early stages of a bear market, a carry-over from the previous bull market
phase. Eventually, though, if a bear lasts long enough it will destroy
even the gambling and reckless spending impulse until people are afraid of
spending money for any reason.
