Monday, September 10, 2007

Fear and Greed

I read one article after another, most giving rational reasons why a stock, commodity or other investment play will be the smart call. The experts are armed with charts and logic and they make fine arguments, but what most leave out are a couple of basic facts of life that we didn’t have to contend with in decades past.

First: the accessibility to the stock market for the average American (Joe Public). With the creation of ETFs (Exchange Traded Funds) and through etrade, Scott Trade and Ameritrade you can invest in almost anything, even areas that were previously inaccessible to the average investor. This brings many more investors in around the margins and the power of herd-think can not be discounted. A good scare can send a lot of money out of the market which in this environment could cascade to a broader panic.

Second: the internet. The average family has access to information on an unprecedented scale at a time when John Q. Public increasingly mistrusts the mainstream media. There is a lot of information out there supporting the migration to investment markets. Not all of it’s good though and as many suspect, enough wrong information about the mood of the markets can have a direct effect on market volatility.

A lot has been said recently about gold and its’ recent rise in value.
Many seem to be seeking it as a safe haven, possibly even some central banks, but the arguments as to why abound.

Here is mine:
As a hedge gold can not be looked at in light of historical movements. Sure, central banks can manipulate gold by buying it or dumping it, but is it not clear to everyone by now (9/10/07) that those big-boys have lost control of the bus? Government reporting agencies, investment banks, Bernake, and other central bankers are looking a little frightened to me these days.

Panic will most likely drive the rise in gold as the true depth of derivatives poisoning wrecks economies and their individual currencies. Can you count up to $470 Trillion? Neither can I…

Some want to assign rational reasons why gold will or will not rise in value. The tech boom of the 90s was not rational. The housing boom that followed was not rational. Those were motivated by common greed. I say fear is a more potent force and if panic sets in, gold which is more easily purchased as an investment by the common man may be perceived as the only safe haven. Couple this with the existence of the internet and the unprecedented ability of Joe average to access unfiltered information and you can see why the central bankers and government reporting agencies are looking scared.

The call for a temporary rise in gold value is a given. Knowing when to get out will be key. Just look for a calm reference by mainstream media (Time, News Week) to get in on the ‘Gold Rush’.
Then sell.
It’s the best gage of an end to a bubble.


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