The American Dream

The American Dream

Is there a definition for this term? 

James Truslow Adams coined the phrase in 1931: (From Wikipedia): "in his 1931 book The Epic of America. His American Dream is "that dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement. It is a difficult dream for the European upper classes to interpret adequately, and too many of us ourselves have grown weary and mistrustful of it. It is not a dream of motor cars and high wages merely, but a dream of social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position."

That's very different from how most of us define the term in today's world.

***

Suze Orman is one of the most influential of those who offer investing advice to the general public.  I find it difficult to believe that there is any reason to mention her name in this blog.  However her audience is the true novice – the mom and pop investor – who truly needs her help.  The sad truth is that the majority of such investors lack sufficient knowledge to make their own investment decisions. They don't even know enough to take the passive approach.

As an aside, I have neither a love of, nor a quarrel with, passive investing for the right investor.  Buy index funds, save a ton of money on management fees and expenses – and own a portfolio that should come pretty close to matching the performance of the chosen benchmark index. That's far better than paying a fee to mutual funds that cannot outperform the market averages.

Suze's advice is neither fantastic nor terrible.  However, the reason I am mentioning her name at this time is because of a recent splash she made by proclaiming that "The American dream is dead."

In her blog, Jenna Goudreau wrote " financial guru Suze Orman is peddling her dark side.  Now, I take a look at her outlook for the country—and it isn’t the sunny, you-can-do-it optimism that I’d expected.

When asked about her financial fears, Orman said: “My only fear in life, when it comes to money, is what’s happening in the United States of America. The American dream is dead for the majority of Americans.

The dream she is referring to is not even a Cinderella story; it’s much more practical. Orman believes the hope of someday owning a home, of working one job for life and retiring at 65 has been crushed by the financial crisis. “The middle class has disappeared,” she continued. “We have a highway to poverty and no roads coming out. I fear for [those] who have been kicked out of their homes, could be living on the streets and don’t know how to find another job. Many of the millions of jobs lost, I don’t think are coming back. I am really afraid for the majority of Americans today.

The cynicism is interesting from Orman, as she is the embodiment of the American dream"

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What does any of this have to do with options?

Nothing.  However, there is a lot of gloom and doom in the press and in the blogosphere. I believe that if this upbeat, optimistic personality is truly concerned, and this is not merely publicity for a new book, then perhaps too many investors are taking too much for granted. 

We all see the market rise, we see businesses making lots of money, and we see banks that went belly-up get rescued and prosper.  However, we also see Main Street suffering.  It's very discouraging.  If Suze Orman can join those who believe the 'recovery' is a mirage, then I can see only two alternatives:

  • There really is too much optimism and this stock market and the economy are headed for disaster
  • This is the ultimate in capitulation by the small investor, and the market rise hasn't even begun

In either scenario, within another year or two, the market could easily be 50-60% higher or lower from current levels. As an iron condor trader, that is a big concern

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11 Responses to The American Dream

  1. Fran 01/04/2011 at 11:19 AM #

    ANYTHING can happen (Mark Douglas)… and it will happen (Me) 🙂
    Living with this uncertainty is our job like speculators and it is why we collect risk premiums. No risk, no money.
    Regards

  2. Mark Wolfinger 01/04/2011 at 12:18 PM #

    Fran,
    Well said.
    We could choose to trade with far less risk and far less reward. Options are so versatile.

  3. Edgardo 01/04/2011 at 1:19 PM #

    Hi Mark:
    Was looking at the OCC and googling it and could not find what type GLD options are…
    Do you know it, and better yet, where to find out?
    Thanks

  4. Mark Wolfinger 01/04/2011 at 1:52 PM #

    GLD options are American style.
    http://www.cboe.com/micro/gld/default.aspx
    FYI: The term ‘type’ refers to either puts or calls.

  5. Edgardo 01/04/2011 at 1:59 PM #

    Thanks!

  6. Newbie 01/04/2011 at 2:17 PM #

    Companies realized they don’t need to hire to grow, hordes cash sitting on balance sheets it’s being used for M&A that actually increses unemployment. Let’s get ready for our own “lost decade”.
    The market is based on confidence, right now it’s very high even with huge unemployment and a terrible housing market. Let’s see how long it last.

  7. Mark Wolfinger 01/04/2011 at 2:20 PM #

    Newbie,
    I’m amazed it lasted this long. But who know what’s next.
    Thanks for sharing

  8. Dave 01/04/2011 at 5:16 PM #

    This market is broken. They killed the goose. This Fed induced pump is a last ditch effort to revive but big money is seizing the opportunity to get out. An old fart taught me about big money pumps long ago (now I’m an old fart – thank goodness). This is what we are witnessing here, this is BIG history.
    How long will it last? A long, l-o-n-g time. Plenty of 13-week iron condors from now is my guess.

  9. Mark Wolfinger 01/04/2011 at 6:44 PM #

    Dave,
    I’m with ya. I see what you see. But the markets rise nonetheless.
    I saw the same thing in the technology bubble. But I went along for the ride, confident that I’d be out of harm’s way on plenty of time. Didn’t happen that way.
    This time I won’t be long or selling naked puts. But I also don’t know just how many of those 13-weekers to play. Obviously it’s just one at a time.
    Thanks

  10. Dave 01/04/2011 at 9:00 PM #

    Ya well I talk a big talk but the sum total of all my accounts: Pretty close to delta neutral (grrrrr). But Theta’s burning bright and that’s a good thing.
    🙂

  11. Mark Wolfinger 01/04/2011 at 9:09 PM #

    Dave,
    You may WANT desperately to be short here. But to me, it’s just not worth the risk. Go buy $1,000 worth of puts every month if you have to do something. [I’m not doing that]
    To me (as a premium seller) the goal is not to get crushed by a continuing rally and to survive a down 15% opening. I’d be happy to do that as theta does its slow job.