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Cyreenik Says

February 2021 issues

A pattern: ignoring record breaking as the cause of a disaster

What do the Fukushima Daiichi nuclear disaster in Japan in 2011 and the Texas winter storm disaster in 2021 have in common? Both were big disasters caused by a record-breaking event, but the news reporting on both events ignore the record breaking aspect as a cause of the problem. In the Fukushima event the record breaking event was Japan's second largest tsunami in history. It flooded the nuclear power plant. In the Texas winter event the record breaking event was Texas' coldest and fiercest winter storm ever. It froze the state's power generating capacity.

In both cases the media reporting chooses to ignore the record breaking aspect of these events and instead spends lots of time and attention on the fact that those in charge hadn't properly prepared to prevent this disaster. How strange... but how classic. The biggest problem with preparing for recording breaking is... which record is going to get broken? Think about it a bit and you realize there are dozens.

A pattern: cheap phone calls -> spam calls while cheap stock trades -> GameStop phenomenon

When new technologies become cheap and widely available it changes how we live. And these changes follow a pattern.

Back in the 1970's, as "Ma Bell" was being broken up, the cost of making phone calls, in particular long distance phone calls, dropped from expensive to near zero. This was seen as a great change by all who used telephones.

But a surprise outcome was the rise of the spam phone call industry. This is when the "Nigerian Prince" phone calls began, and they evolved into today's spam phone call industry.

These days this same kind of change has been happening to stock market investing. The cost of making stock market trades has been falling dramatically over the past few years and is now down to near zero in some parts of the retail investing environment.

Not so surprising, once you see the pattern, is the rise of GameStop-style frantic trading and wild stock price gyrations happening in a handful of stocks.

We are witnessing the surprise use of a new technology, but this surprise use is following an old pattern.

This 30 Jan 21 WSJ Intelligent Investor article, The Real Force Driving the GameStop Revolution by Jason Zweig, talks about this GameStop phenomenon. From the article, "Individual traders banded together this past week to move markets like never before. But the buildup to this remarkable moment has been happening for decades."

 

 

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