Monday, May 11, 2009

When Fear Goes Away

Fear is one of the most interesting psychological phenomenas. Many things cause fear. Sometimes these are real events, sometimes they are imagined or dreamed or made up.

A normally happy person who is optimistic and willing to try anything has very little fear. It may have taken the person many years to get as happy and optimistic as they are. They may have never experience true fear so there is nothing to really fear in their lives.

But, present this person with a horrific event, and those years of optimism can come crashing down. This person may become fearful, unhappy, pessimistic. And it happens very quickly.

For that person is probably not likely to ever be as happy-go-lucky as they were before the event. In fact, it will take years for them to even come close. Take the 9/11 terror attacks. People in New York city, or any other major city in the U.S., would enter their high-rise office buildings with no fear for years and years. One horrific event caused 10's of thousands of people to fear entering tall buildings, or even the fear of flying.

There is still fear today and you see that in every large edifice with clearer and larger signs for exits, better backup emergency lighting, better escape plans. Airlines and airports have fear all over them with much higher security such as bullet proof doors on the cockpit, no liquids, x-ray'ed shoes, etc.

It has been 8 years.

The point is, fear causes normal people to behave differently very quickly and very violently. Just as it does in the market, the largest moves down come from sudden fear. The return back up takes many many years.

But on top of that, the fear never goes away. It is always in the backs of peoples mind. Like the Air force One fly-by in New York city caused everyone to briefly remember the fear of 9/11.

Many people have been telling me to just play the trend. Go long. I do to some degree, but I am still a bear. And the main reason I am a bear is because I do not believe what I am hearing. I fear that the balloon will bust at any moment. If it does, it will be vicious, sudden and cause widespread panic. If you are on the wrong side of it, you can get crushed.

I do believe the fear will come back. For now, optimism reigns. Even this weekend you could see more people shopping. Not buying big ticket items, but more out there. People still fear for their jobs. So the pocket books are not opened wide up yet.

The optimism comes from media and government reports that things are getting "less worse". This information is based on adjusted and very pessimistic analyst estimates on earnings, job numbers, GDP, etc. It was very easy for companies to beat their numbers and very easy for unemployment numbers to be less than what was projected.

But what happens if retail numbers get worse than last month. Or unemployment goes up. Or GDP continues to stay in the -6% range? Fear will return and it will happen quickly, swiftly and violently.

Lets hope it doesn't happen but we are in an environment where it easily could.


As for the VIX, there are no signs that the market will turn around soon. It stays solidly below and away from the 20 day MA. Again, until it passes that, there is no reason to stick your neck out too far on the short side. So you have to stay low, buy on dips, sell on rises, and keep your head on a swivel.


  1. Thanks so much to take your time to share your market sentiment. I couldn't agree with you more. Not sure if you got a chance to read this link yet, but something to remind us to keep us on our toes.

  2. Beamer Dog, someone out there like you can write a very good book about the frauds, deception and manipulation that going on among government, banks and institutions. I caught this post that I thought to share with you to may bring you some inspiration.
    Dear David, Dan and Marshall,

    A lot of investors, who did fair and comprehensive analysis on the earnings
    power of the top 19 banks, have been hurt by the arbitrary last minute change
    of accounting standards by Federal Regulators during the stress test to
    artificially bolster banks balance sheets in the "hope" that there will be a
    recovery. We believe it is illegal to "negotiate" what the losses are on a banks
    books. It should be more cut and dry. Although the media has hyped this green
    shoot theory, there is no evidence that a recovery is really underway, exampled
    by the suspect revisions in the February and March employment numbers that
    began the March rally. If the real numbers on employment came out in February
    and March, there would not have been a rally in the first place as it shows that
    job losses are actually accelerating.

    We are contacting the New York Attorney General's office and filing a lawsuit
    and focusing in on Capital One regarding this issue. In reality, the company's
    financial health could not be worse due to its sky rocketing credit card defaults
    but we believe the Federal regulators did not include their off balance sheet
    entities in the test, artificially inflating their TCE ratio. We also believe that
    Goldman Sachs, who had inside knowledge of this affair, raised their price
    recommendation of the stock and jumped on the bid the past few days, which is
    know as "front running" and is illegal.

    It is no coincidence that many of the these institutions had shelf registrations
    ready to go before this artificial run-up and many made large profits from
    inside knowledge that all this was going down at the expense of others who did
    their research on these banks. This is clearly fraud and we are concerned that
    many of the off balance sheet toxic assets will simply disappear through off
    balance sheet entities and laundered through phony corporations and possibly
    onto public debt. There are rumors that this is exactly what is happening at
    Capital One. Even if this aspect of the fraud does not turn out to be true, we are
    still pursuing the issue of balance sheet debt not in the stress test and the front
    running by Goldman.

    It appears that the three of you have intimate knowledge of many of the tactics
    that are occurring, evidenced by your recent article and would like to
    commission your cooperation in this matter to bring this fraud out into the open
    ala Enron.

    It does the United States no good to defer the problems of this country in the
    hopes of a better time, while at the same time hurting legitimate investors in
    the public markets.

    Please contact me at your earliest convenience so we can discuss further.

    Best regards,

    xxxx xxxxx
    xxxx xxxx LLC

  3. Mandy, great article on Zulauf. Isn't it interesting how he has been forgotten. It is because he does not get on TV and talk about the micro-market moves. He is more of a long term strategist. His call on March 7th is proving to be right no with the rally. And his logistics for why we bottom in 2011 in spot on.

    He is definitely someone to try to keep track of as far as his thoughts.