Decisions...

Huge consequences can come from the smallest decisions. A decision to wash your car right before a rainstorm...not so bad... But what if you decided to wash your car right before a tsunami hit...oh man would you be in trouble (because you probably should've been driving that dirty POS as fast as possible away from where you are)...The degree of the consequence determines the decisions that you make...more specifically...the decision that you make is determined by how risky you want to be. Pascal's wager was thought of as one of the biggest decision anyone could make..."God is, or He is not."

B = Believe
~B = Not Believe
G = God Exists
~G = God Doesn't Exist

B*G => + infinite
~B*G => -small #
B* ~G => +small #
~B*~G => - infinite

This would definitely be the first sign of game theory in a much more philosophical sense except that the contrapositive does not exist and we are therefore left to play the game as player B or ~B. There would definitely be an absolute advantage if all things were omniscient and we would pick the square BG. However, we don't know everything and we definitely can't guarantee that God exists...so we are forced to make the "best" decision. Well, the "best" hopeful decision is to live as though God exists because if he doesn't exist, then Pascal states that nothing would be different except you lived a good and moral life. If God does exist, then you have infinite happiness.

Pascal's wager was a very primitive game theory event that preyed on two of human's most important nurture-instilled traits: 1. Fear 2. Order. You see, people's decisions are based off of reason. But people's reasoning is based off of their risk aversity. So ask a man to make a decision and he will always pick a Nash Equilibrium...the one that will guarantee him something...instead of leave him nothing. It won't be the optimal solution nor will it be the best solution for someone else, but as long as he doesn't risk losing everything, he can live to fight another day. Furthermore, fear is what drives people to follow and conform. Fear drives people to stay within the bounds of the social, political and economical "norm", and prevents most people from ever learning to think outside the box...or maybe not at all...

Order is a little more complicated. You see, with the ability to reason...the ability to resolve problems, and the ability to create civilization, we forget that we have never really learned how not to learn. Most things that we know, things that we've experienced have all been based on a pre-conceived notion that society "is how it is". Even if we dare to change it, we never exit out of the bounds that restrain us. Everything needs a proof. Everything needs a reason. Everything needs a law or a theory or result. And nothing can just be accepted. And even if you think that you don't fall under this category, the very argument of "I don't care." means that you have already compared this array of information to the data that exists in your head to rule it out. Order builds upon order. Its like an infinite loop to disprove the 2nd Law of Thermodyamics for any type of philosophical argument. We, as a society, don't know what it's like to do something just to do it...no thoughts or consequence...that's order!

So why have I ranted for this long about all of this non-sensical gibberish?

Well, it has to do with the stock market. It has to do with the fact that when order is taken away, people resort to the only other thing that they know: FEAR. So, we must learn to use people's fear.

The market has been horrendously radical with no real reason for anybody to do anything. Yesterday, GE allegedly made a "comment" about earnings going to be "in-line" with next year and the market tanked from +4% to -2% in less than 3 minutes. This came just after the Fed had announced that it was dropping its interest rate to 1% (down 50 basis points). Wtf?!?! And get this...we have companies like XOM ($88 B) moving at 10-15% volatility in less than 1 day!!! I can only vouch for one thing...people fear what they don't understand. (And yes, I know you can make a case for liquidity, short squeeze, arbitration, bad assets, global swap trades, etc, but the bottom line is that people don't know what information will do what on any given day.)

I believe that the only people who will survive in this market are 3-fold:
1. Those who just get out and don't look (concede the game).
2. Those who seek any type of order (i.e. Nash Equilibrium) that will work to the least risky advantage (high dividends, decent bond yields, money market, etc)
3. Those who seek to play the game.

Right now, this is a time of no order. The credit crisis has just gotten its first $250B or so injected into the market, the Fed has agreed to play the futures games by assuming the risk of certain "decent-valued" assets, liquidity is now at a deflationary point due to lowered interest rates, liquidity injections, domestic/global recession and finally a lack of confidence in the order and fairness that the capitalist laws have put in place.
The way you should trade should purely be upon the statistical data and information that you see in the numbers. If you see a double bottom, with an upside of 10% before the next ceiling level...invest. If you successively lower lows in a stock that sees no bottom, get out. If a stock is oscillating within a bounded region, wait for a 1-2% break up and buy or 1-2% break down and sell.

The only wrong way to trade the market is to think that anything you ever learned about an orderly market will work right now. Information is just a information but at this point, the only thing that will cause the market to crash would have to be significant stuff (like Barack Obama wins as president...oh man that will be a day we break new lows in the market hahaha). The government has given you an ultimate low at S&P500 at around 790 and I believe that it will stay around that 0-20% range above that price (even though I believe that the current "fair market" value for the S&P500 is actually more like 725 - 750).

Just remember, the words of the Joker, “Introduce a little anarchy, upset the established order, and everything becomes chaos...and you know the thing about chaos? It’s FAIR.”

...Become a real trading "monkey"...