The U.S. Market of Fear

If behavioral finance teaches us one thing, it is that Fear trumps Greed. In fact, it's not even close. Fear is like the Harlem Globetrotters playing the Washington Generals. Sure, ostensibly it's a real contest, but despite the ups and downs along the way, we always know who's going to win in the end. The outcome is predetermined, inexorable.

Fear drives the market. Why? Because losing hurts more than winning feels good. Because the future is uncertain, and the default emotion in cases of uncertainty is fear. Because you're not paranoid, the Market really is out to get you, and fear is the greatest weapon in the Market's arsenal.

How do we fight our fear? With "reason"? Well, some people do. And by "some people" I am chiefly referring to Vulcans - the supremely rational beings from the eponymous planet who are not afflicted by such human weaknesses as emotion. (Then again, Vulcans mate only once every seven years, so you can see why emotions could be a big drawback.)

No. For most of us on Planet Earth, we are forced to fight the battle on an emotional level. Reason definitely helps, but only so far as it helps us reacquire our emotional equilbrium.

Fear is a poison. But there is an antidote - Control. Not actual control (which is irrelevant) but the belief that that you have control. Fear beats Greed. Perception beats Reality - at least where our emotions are concerned.

We have seen this play out recently on marketwide level with the recent actions of the Fed Charmain, Ben Bernanke. The market flagged due to fear. (It always does due to fear.) But the fires of fear were stoked in large part because one of the main sources of investors' (sense of) control is the Federal Reserve Board.

After months of hearing "Inflation remains our primary concern", investors began to wonder if the esteemed Dr. Bernanke really "got it". The Market was saying; "Does he understand our concerns? Does he even care?"

Investors were riding shotgun with the Fed Chairman on a dangerous road. They were concerned there may be a cliff up ahead, but they were even more concerned that the Fed Chairman was asleep behind the wheel.

The first shot of control was injected back in July when Chairman Bernanke acknowledged that the mortgage crisis (and credit crunch) were on his radar screen. (Whew! He's not sleeping after all.) The second shot of control came when he lowered the discount rate. (He's awake and he's willing to hit the brakes.)

People called his decision to lower the discount rate a "largely symbolic move". Exactly. Symbols are important, especially when the symbolic gesture tells people, "Relax. I'm on it".

The Market has been calling (or is it whining?) for an interest rate cut. And I, for one, think that would be splendid. But investors got something even more important. They got back their sense of control.

It's like the immortal words of Mick Jagger:

"You can't always get what you want, but if you try sometimes, you might find you get what you need."

Fear and Control

By Kathy Wilson

Fear has many uses. It can be used as a warning to keep you from entering into a situation that might hurt you. It can be used to motivate you away from something, such as a harmful relationship or a dangerous situation. It can also be used by others to control you.

How do people use fear to control others? When you understand what happens physiologically when people experience fear it becomes quite easy, as you'll see.

There is a part of your brain that exists solely for your survival called the "reptilian" brain, which is the original part of your brain. As humans evolved, our brains grew and other parts were added, such as the limbic system which deals with emotions and the cerebral portion which is the thinking part. This reptilian brain is located at the stem of the brain, securely protected by the rest of the brain. When all other parts of the brain are non-functional, this part will still be ticking away, assuring your physical survival.

When you experience the emotion of fear, your reptilian brain goes into action and the rest of your brain shuts down. The function of this part of your brain is to support you either to fight or in flight. When you are in the emotional state of fear, you have two choices and everything you do will be based on one of those choices.

If you're thinking, "Hoo haa- We're too advanced for that", remember the last time you were in a very disagreeable situation. Were you wanting to have a nice cozy, loving chat with the other person? Not likely. Probably you were wanting to get away from them and escape the uncomfortableness. Or maybe you were thinking how satisfying it would be if they got a comeuppance. These are flight and fight reactions.

Additionally, when you are experiencing fear, your entire body goes into fight or flight mode. All your blood is redirected to the parts that are needed for fight or flight - your heart, lungs, muscles, and your reptilian brain. The rest of your brain is left with only enough blood to keep it on idle, which means that you have no capability for rational or creative thought. It's all black or white, yes or no, good or evil. In this state you do not have the ability to think of alternative solutions to the situation. Only run or fight.

How ideal for the military! If they keep masses of people in fear and educate them in the many ways to kill other humans, they have a ready, willing, able, and non-thinking military force. This falls right into alignment with the basic premise of the military: follow orders without question (or without thinking). Whoever came up with the idea of using fear like this was a real genius. Just look at what they've created.

The polarity thinking that is created by fear can also be used very easily and effectively on the general populace by our politicians and other powers. Look at how our own country is divided right now by the fear that has been promoted by the current administration. They are continually coming up with new ways of keeping the citizens of the U.S. in a state of fear. The "security alert" with it's color coding is perfect. All they have to do is change the color of it to turn the level of fear in this country up or down, just like controlling the flow of water in a faucet.

What's the answer? First, get yourself out of the state of fear. In order to be able to think you need to be able to use the other parts of your brain. If you are having difficulty getting out of fear, here are a few things you can do:

TURN OFF YOUR TELEVISION- Especially the news. Have you ever felt wonderful, or even good, after you watched the news? Even the commercials are designed to make you feel sick and fearful.

Get in touch with the earth. Go for a walk without your cell phone or CD player and truly pay attention to the beauty that surrounds you. Notice all the things that are there to support you - trees for shade, all vegetation for oxygen, ants to clean up the minutest messes, birds to spread seed for more plants to grow.

Show appreciation to your body by giving it something nice - a massage, a cup of herbal tea, organic food, pure water. It will thank you by feeling more energized.

Don't hang around negative people or people who are being negative at the time. You don't need to absorb their fear any more than you need to absorb the fear from the news on TV.

As you begin to emerge from the state of fear and can once again think rationally and creatively, look at how you can create unity in your life instead of the polarity caused by fear. The world will thank you.