Fear and Greed.. Or Is It?

It is generally accepted by all that the markets are ruled by fear and greed and that fear sells and greed buys. In other words, as I've said oft before, fear capitulates, greed accumulates. But what if what I propose now is more correct; that is it's fear either way.

It is fear that makes us accumulate; a fear of losing out. And it is fear that makes us capitulate; a fear of losing what we have accumulated. It's why we buy insurance. Everything in modern society is really advertised on making you fear. The insurance business has made a sale of security for hundreds of years, but never as much as today. And to what end? Has it made you more secure? I propose not, in fact I propose it's just made you more fearful; can you buy enough insurance?

When you're born onto this world, and you happen to be born on American soil, you get a guarantee of inalienable rights under the U.S. Constitution, with no guarantee of security written there. But that's more than what you get under God's law, which guarantees nothing except an afterlife, dependent on behaviour. If you are an atheist, you don't even get that. So where is there a guarantee of security? Nowhere and I submit to you, that it is a natural law that there should be none.

I think that if someone could guarantee security we would not survive in the long run, or at least not survive happily. There would be no reason to. Why invent, innovate, conquer, triumph if you are guaranteed security? The nature of all living things is to thrive and grow, to become the best of what we are. In other words, compete which requires risk not security. The strongest lead, the others follow but only for the feeling of security. No? There's security in numbers and most likely the feeling of belonging. Can you really buy insurance and feel totally secure? There's always someone or something willing to challenge you, take you on and take your place, no matter how much insurance you buy. Insurance only cushions if you get to collect because what you've lost in order to collect is gone regardless.

As traders we flock together for the same reason, and follow those we see to be the leaders for the moment all out of fear. No matter which fear, we take on the role of leaders and followers all in pursuit of making a successful trade. Yet there's no insurance nor assurance that we will succeed where others have, otherwise the fear would subside. So perhaps it's really fear and security which is ultimately fear nonetheless.

Marketing Thoughts

I'm thinking 'tis the season to be jolly and all that... but also thinking it's no so jolly for many and most who I meet seem to be in a funk of one sort or another. Somehow the merriment is lacking at least around here. I won't bring up politics because that's useless.


Was at my usual Saturday afternoon wine tasting this past weekend; the establishment dropped the admission price by 50% for the last tasting of the year and 3 times more than the usual number of people attended. It was more crowded at the tasting than at the shopping mall. Says something about free markets don't it?


Learned years ago that pricing makes a big difference and that you can over price as well as under price things with the same results. Items in either category won't sell. People always want to pay what they feel the things are worth. I think it's the same for stocks. Priced too high people stop buying it drops too low, they get worried about the worth of the equity and they don't buy. Priced just right and they can't get enough until .. well you know how it goes. Says something for free markets don't it?


Also learned that people like to shop around and feel they've done their research that way before buying. Makes them feel better about the purchase they make. I think it will play big under current economic times. Imagine if all prices were regulated which would take the play out of the purchase. Would not be fun for merchant nor customer because consumerism would diminish, world markets would slow, shopping would become mundane and done mostly when necessary further reducing variety of merchandise and therefore choice. Economies would fall, unemployment would rise, innovation would slow. Sounds like what's happening in Venezuela, what happened in Cuba etc. etc. Says something for free markets don't it?


The horse and buggy market is not at the top of it's earnings heyday either, wonder if in today's world, would they have been entitled to a government bailout? Do you think the automobile's success would have been postponed as a result perhaps? Says something for free markets don't it?


At least 3 major airlines went into chapter 11 bankruptcy; UAL twice I believe, AMR and DL yet they are all still flying and competing. (I will comment about their customer service some other time because that certainly needs a bailout.) Knowing what they have been going through for the past 30 years, since deregulation, it's a wonder so many have survived. Actually it was predicted that only 3 would survive: TWA, Pan Am and UAL. Says something for free markets don't it?


So my final thought is: Stop clamoring for government intervention, regulation to save your a$$ets and then maybe sooner than you think, markets will right themselves again, companies will do what's necessary to survive, the ones that can't or won't will and should be out of business. And that's exactly how free markets work.
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Farewell Free Markets

When every market move is hanging on what Government says or does it's a sure sign that the free markets are gone. I have been writing and talking about the danger of our increasing dependence on what the government indicators are for quite a long time. Markets used to move without waiting and hanging on every word from them, but not anymore.

Besides the current examples of Congressional hearings about GM, financial bailouts, and Paulson, we've been breathlessly waiting for numbers on unemployment, housing starts, housing sales, interest rate hikes/reductions, oil reserves, oil outputs, OPEC price decisions, GDP information, etc. etc. etc. ad nauseum; something for every day of the week only to be constantly analyzed, and repeated by the news media based on the numbers and pegging each indicator to each tic, and regardless of accuracy or not, being held as gospel. Did we bring it on ourselves?

I remember a time when company earnings, valuations, book value and p/e ratio was more important. It seems to me that the very availability of having instant information made us into a bunch on knee jerk traders and investors. The media was more than willing to accommodate as need be, giving us information headline by headline , tic by tic, and analysis after analysis. All instant opinions and all could and can be acted upon immediately with just a keystroke; still it was acted upon as we saw it's effect on the company and we were not so concerned with government regulations effecting them.

Unfortunately that has changed to the point where the information we get word by word from the government trumps all other reason and regardless of how well a company is managed, how good their outlook, their book value, p/e ratio or earnings, traders are dumping them. We deem company information now as irrelevant because we fear what the government will say or do in the next minute, hour, day, etc., so we are trading out of fear.

Government action fear based trading should worry us all, it's not only because we act fearfully but, also because we are letting the government regulate how companies will operate and letting go of true capitalism. When we call upon government to do something about excess CEO bonuses and income, when we have politicians instead of stockholders call for company accountability and when we call upon government to equalize things via regulations we have a socialist market and we don't have a capitalist free market. In other words we have a China not USA.

A perfect example of how a fear based government regulated market works is being lived as we speak. Another more specific example is how the Chinese government via the media effected BIDU; trust me, there's no way that CCTV would have reported the news without the government's OK, because BIDU is far too public not to be monitored by them. The reason could be as innocuous as someone in BIDU offending a high government official or perhaps it was because they owed GOOG something but both those are just (somewhat educated) guesses. In other words when government intercedes, reason for company viability is thrown askew by the sheer effect of the unknown. True or actual reasons are unknown, and as you know market hates uncertainty.

Under a capitalist free market, reasons could be reasoned by looking at books and other more direct information about a company; under a socialist market reasons can be a joke, a favor, a bribe, a threat, a ______ (fill in the blank). FNM and FRE are examples of government regulated stocks, now we have AIG, all the banking stocks being bailed. We also have the threat of the entire market being re-regulated, monitored and run by them and as a result, chaos will continue to prevail.

As rules will change your reaction and adaptability will count, but don't count on reason because the markets and our government as we've known them are no longer there; we've given them far too much reign over us.

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