Fear and greed are said to be the forces that drive the markets just as some believe the universe is directed by forces of good and evil. Yes in markets greed is genuinely considered to be good rather than evil because most market participants desire increasing market prices rather than the opposite. Greed is what makes home values go up and it what makes stocks worth selling. Fear can quickly cause prices to collapse. When the markets get into me too greed expectation of higher prices mode there tend to be a lot more participants and a lot more money flooding in that has to cause prices to rise irrespective of their intrinsic value as investments. Greed becomes a orgy of excess . Most everyone enjoys the boom times. The industry of selling greed is quick to develop and it will thrive even in times when panic causes greed to be gone. The sellers of fear survive in boom time markets but they hardly thrive. No one wants to worry about the inevitable coming crash because it could come at any time. It could come today tomorrow or ten years from now. Boom times can also generate inflationary pressures and that can only extend the need to buy even if it does not produce actual bargains.
The Market conditions where selling fear becomes more popular than selling greed is pure exploitation. Sellers of fear actually do hope for self fulfilling prophesy. Before the big stock market crash these people were active and as usual they predicted a major market crash. The Popular press zooms in on these people as if hero’s and Prophets for predicting what everyone else failed to predict but if you were not a market spring chicken you would know that the same people predicted the same thing for the past ten -twenty years . Had you listened to them when they last told you to sell everything and gone to cash rather than staying invested you would have missed the greatest bull market in history. If they were your broker they would have still made money and you would have lost yours or at least ended up having cash with eroded value due to inflation.
Gold and other collectible precious metals have always been fear being sold. The market for gold is a bit more complex because it is sold as a mixture of fear and greed which is a sort of hedge in itself. Gold can completely overshoot the value it has a hedge against currency inflation/ devaluation of the currency. It has done it before and it certainly looks like it is there now since Gold production costs can be lower than 1/3 of the market price. As a commodity , gold is subject to market supply and demand. In the recession market of 2010 gold reached new non-adjusted for inflation market prices with much of the excess demand generated by fear selling tactics. The fear sellers are able to overpower the reasoning that in an atmosphere of gross market deflation that gold should be appreciating when there is no present moment inflation. Market prices are here and inflation is somewhere out in the future. Maybe at some point there will be enough inflation to make it worthwhile buying gold at recession/ inflation fear prices . Time will tell. What is strange though is that government central banks who should know better than to buy gold at prices substantially above base mining costs is that they are in a frenzy to buy gold when it is most expensive. It is fear marketing that has them behaving in this manner. The market bubble in gold prices will continue to rise until at some point the psychology changes and fear selling begins.
There is an atmosphere of fear where gold is sold. Just turn on Fox News or some similar news station where ads to “Acquire” gold, which is lingo for buy at an excessive price that benefits the producer and brokers involved as a certainty and you hear slogans on these TV stations like “Fox News, Have no fear.” A slogan similar to that goes back into the Bush Administration years with fox. That attitude is the prefect place to market fear to the masses. The question for those willing to part with their money “acquiring” gold should be why are these idiots selling gold so cheap if it is going to double in five years? The second question is who is more likely the idiot? Me buying gold from experts who are selling it with wild abandon or the experts selling because the price does have to go up eventually? Fear sells gold and so does greed. Greed coupled with fear can sell even more gold.
Gold is just one part of the growing fear selling industry. The fear selling industry includes reverse ETFs which are stock shorting fund. Even the US Treasury is involved selling non interest rate bearing or very low interest bearing treasury bonds and notes. Fear marketing and fear of recessionary deflation has the treasury raking in money for bonds and notes. Offering safety and security of principal might be their biggest selling point. Growing government indebtedness then has the gold bugs buying up more of the glitter stuff. Recently the pimco investment stock and bond mutual fund company announced it has created funds designed to make money if the economy and market collapses. That is the latest in the trend toward selling fear as the contemporary fear sales tactic trend. Since it has the greed component too one might be a little suspicious that the timeliness of this investment will reward investors. The trend is getting so perverse that we might be seeing a chain of stores open that specialize in selling fear instead of more positive values.
Some super stock market investors are well aware of the fear selling pressures in the markets. These people work to augment that fear for their own advantage. They attempt to get the maximum number of people fearful enough they sell while waiting for a lower market price threshold to buy up what they inspired others to sell. This selling goes on in a range from the highs tot he market lows. The idea of the professional fear sellers is to get people to throw away everything they own of value so they can come in and pick it off the ground practically for free. The confusion in the market place comes in with the understanding that short sellers only have an appetite for selling. If not them directly some other consolidator will be buying. Stocks require both a buyer and a seller for the transaction to occur in the first place.
Selling fear can be very lucrative business. Ample evidence exists that the entire market collapse and banking collapse and freeze was due to success of selling of fear professionals. It is true that the federal reserve could have prevented the entire sub prime housing market collapse just by lowering interest rates instead of raising them. People who had adjustable rate mortgages knew they could make the payments so long as the interest rates stayed low as what they had expected when they bought their homes. There did seem to be a conspiracy at work to cause the crash beyond the federal reserve and that was in election year heavy machinery coming out that seemingly was designed to cause the market crash that did occur Subsequent to that was the very suspicious “Flash Crash”. The Flash Crash still looks like a conspiracy to generate a second market crash because there are people in the industry who feel they missed out on the market’s return to favor and profitability. Fear sellers can control the market only for so long before greed in a major way comes back as irrepressible. No predicting exactly when.