A Dent in Our Pessimism

by Don Boudreaux on June 12, 2009

in History, The Economy, The Future

My friend Fred Dent, of Dent Asset Management, is optimistic about the future.  His case is strong, and his presentation is fascinating.  Here's the short version.  Here's the longer one.  If you have time to watch the longer one, I recommend it highly.

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vidyohs June 12, 2009 at 9:25 am

Short version, then I gotta go video another doctor.

I felt deja vu as I watched and thought of my own frequently asked question, "where would mankind be if we only stopped making our father's mistakes?"

Corey S. June 12, 2009 at 9:54 am

I … believe in Harvey Fred Dent?

Eric H June 12, 2009 at 11:10 am

I caught the quick version.

The free-market libertarian side of me is thankful for Dent's optimism.

The Taleb-influenced pessimist side sees the fallacy of causation: just because our government hasn't made a complete mess of past downturns doesn't mean it won't this time.

Still, it's good to get a reminder of how people adapt and markets flourish, even when the popular wisdom thinks they can't.

Bret June 12, 2009 at 11:22 am

Eric H wrote: "…just because our government hasn't made a complete mess of past downturns doesn't mean it won't this time."

Could the government have made significantly more of a mess of the downturn in the 1930s?

Methinks June 12, 2009 at 11:33 am

Obviously, the last screen is the most important. Obviously, nobody will listen to those words of wisdom for one reasons.


He is targeting retail investors (I think) and retail investors don't usually have the skills to determine fair value, so they allow panic to overtake them rather than risk staying long a company headed for bankruptcy. Also, individual investors are rarely sophisticated enough to employ hedging strategies, so they're always long – which is another way of saying that they are persistently short volatility. It should also be pointed out that during periods of euphoria, no price is too high for individual investors because they are panicked that they will miss out on the next boom. Some of the latter is happening again now.

Some institutional investors will have to dump positions when the market tanks to reduce leverage – even if they know they're dumping below fair value. Institutional investors will also have to buy into the hysteria even if they know it's insane in the name of yield during booms to avoid losing investors.

He's right. This cycle repeats itself and always will. Government, of course, will take advantage of the busts to grow its power in the name of preventing the next bust.

Rafi June 12, 2009 at 12:00 pm

I enjoyed the longer video series. The comparison to Yellowstone fires makes me wonder though… when the forest has burnt to the ground that is akin to a market bottom, correct? Well isn't the government bailing out companies the equivalent of putting out the fire before it is finished burning all of the trees? His analogy was predicated on the belief that America will be a place where free enterprise flourishes. Is that the direction the government is taking right now? To the degree those circumstances change, won't prosperity be stifled?

One other point. If there is a real decline in political stability (not just media hype) and the rule of law, this time really will be different. That is of course, just an "if"…

Lee Kelly June 12, 2009 at 1:18 pm

The last few hundred years of human history have been a rather peculiar blip in what otherwise has been a consistent run of struggle and stagnation.

Just sayin'

Stewart Ulm June 12, 2009 at 2:02 pm

I appreciate Dent's optimism. But what would his charts look like if he was analyzing the growth of, say, Argentina, or the Ukraine, or Germany? I assume that over the long term these countries also have relatively even growth slopes.

Sometimes it really *is* a different situation.

colson June 12, 2009 at 2:11 pm

@Rafi: The reality is that the forest fire will happen. Now you can spend your time trying to put it out or let it run its true course. The long-term results are often better than if we attempt to interfere with markets nature.

For all that the government is trying to do, the market will do on its own regardless of how hard we *think* times are and whatever course of action we *think* we *must* take.

@Lee Kelly: Interesting point. I'm curious as to whether individualism and expanded liberty have had much to do with it. Of course, I'm biased to believe it true. While I may often feel compelled to gripe about the erosion of rights, the truth of the matter is that we live in far freer times now than ever before. I tend to believe there is a significant motivating factor when people are free to do things as they please and capitalize on their efforts.

robert June 12, 2009 at 3:39 pm

Well, Warren Buffet is always prone to reminding us: Never ask a barber if you need a haircut, or never ask an asset manager if things are going to get better.

Freer than ever before? Ha. Ask my grandaddy who was in business in Texas in 1910 or pops a business man in Texas in the 1950;s. Freer than ever before–yeah right? How did you come to that assesemetn Colson? I found it much easier and had less governmental hassles forming a business in Australia than in the U.S. I could smoke pot and frequent brothels also if inclined as the former is decriminalized the latter legal. Sorry Colson, nice sentiments but not supported by the facts. Seen the effective tax rate of a california businessman lately? the data both current and historical always mitigate agains such Panglossian visions. Perhaps with the new Obama investment Czar we may see freedom and happy days again!

vidyohs June 12, 2009 at 4:22 pm


I think robert has it right:

"While I may often feel compelled to gripe about the erosion of rights, the truth of the matter is that we live in far freer times now than ever before.
Posted by: colson | Jun 12, 2009 2:11:47 PM"

I am perplexed, when did this freer time begin, care to put a date on it?

Of course I assume we are talking about political liberty and individual liberty here, right?

colson June 12, 2009 at 5:20 pm


You're making my point for me. You're looking at what I'm saying in a very narrow context of time. This is the exact point of what Mr. Dent was saying as well. If you look at the overall history of mankind from a global, historical perspective, you'll find that people are far more free today than at any time in the past (both politically and individually).

Don't get me wrong: I agree with everything you say in the context of modern history in time and place (say, in the US since the civil war). We have our ups and downs all the time. The balance of liberties we enjoy is constantly in flux. But we have come a long way since banging rocks together and beholden to medicine men.

vidyohs June 12, 2009 at 7:05 pm


Speaking of individual and political liberties consider frontier America from 1783 to the mid 1880s, and compare it to today.

We are more free from disease and hunger, but they were more free from government.

Gil June 13, 2009 at 3:48 am

"We are more free from disease and hunger, but they were more free from government." – vidyohs.

(Except the slaves?)

I can see many a Libertarian praying "Please! Pleeeease! Let this downturn be The One. The One where government starts to fail, riots break out across the land, the only law is the law of the gun and the knife, the land will be depopulated of the sheepish masses, those who foresaw this bought good farming land and prepared themselves ahead of time to convert the remaining survivors into farmhands and, at long last, the leaders of society will be made up of those who hold the most private land."

vidyohs June 13, 2009 at 7:15 pm

"The One where government starts to fail,….
Posted by: Gil | Jun 13, 2009 3:48:57 AM"

Already happened, Gilhuahua, failed a long time ago.

Pahse one: organization.
Phase two: expansion
Phase three: administration
Phase four: defending territory
Phase five: dividing the spoils
Phase six: collapse

IMHO Phase four kicked in roughly somewhere between 1895 and 1913. Phase five kicked in roughly 1960.

The hard fact is that once Phase four evolves, it is near impossible to prevent Phase five and six.

I personally know we are in Phase five, are we entering Phase six, we will know soon. I personally think our next national election will resembles Zimbabwe's, in all its corruption. But, why waste any breath on a limey, they forgot about freedom even earlier then we did.

Gilhuahua, do you understand the word frontier? Frontier, Gilhuahua, frontier.

scratch and dent October 13, 2009 at 4:27 pm

Always nice to see Disqus keeping an eye on Disqus … Thanks Giannii (You guys rock!)

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