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Selling Fear and Greed

It is human nature to be drawn to bad news.  Car accidents, people in danger, mine collapses, shootings, etc. – they draw our attention, whereas good news is more likely to go unnoticed.  Nowhere is this more evident than in the investing world.

News didn’t used to be so important, but the advent of 24/7/365 cable news changed all that.  Competing for viewers in the 24-hour arena means that sensationalism will “give a network an edge.”  Not just the networks are competing – individuals are head-to-head on every channel, vying for your time and business.

In good times, they will try to sell you something using fear and greed.  In volatile times, they slant more toward fear.  On the radio show, I have brought you a number of my favorites.  The list is seemingly endless, because air time is perpetual.  Why is it like this?  Because a lot of it works in getting your attention.

Why are we wired this way?  It probably comes from a survival instinct imbedded in us from the earliest days of intelligent man sharing the Earth with dangerous creatures (and each other!).  Here’s the rub: Americans tend to perceive that people who are negative are smarter than those who are more optimistic.

This leads to what I call “Bizarro Economics” (from the Superman opposite world character).  This is where news is treated is in the opposite manner to what you would intuitively believe or would even guess.  Given this, it is imperative that investors control their fear.  Some examples from this week’s news may be enlightening:

  • “Is your retirement account likely to grow 80%, or to shrink by 80%?
  • “Your 401(k) is already worthless”
  • “Ronald Reagan passed a secret law”
  • “Our clients participate when the market goes up, and didn’t lose money when the market went down”
  • “Congress took away $60,000 from your Social Security”
  • “The stock market will collapse on July 20, 2014”
  • “The market is in freefall” – heard Tuesday, January 26, when the DJIA went up 202 points (add Friday’s 396 points to that)
  • “DOW Plunges 1,479 Points, Economist Warns Still 67% Overvalued” – Harry Dent (the Perpetual Bear, who never met a market he liked – selling his newsletter)
  • “It is with great sadness I write to inform you that any day now your IRA or 401(k) could become virtually worthless,” by “Last Resistance” (this one touts a “legal loophole” – they are selling gold – also the “IRS Loophole” that will save you and your money
  • “How Does $70,000 per Month Sound? (separate details)
  • “Flip houses with NO risk” – on radio right now
  • “Former U.S. Congressman Issues the Following Warnings:
  • “Currency Collapse is Inevitable by Spring of 2016”
  • “World Reserve Currency could change as soon as spring 2016”
  • “Fiscal crisis WILL cause Fed Gov’t to target 401(k)s and IRAs for revenue”
  • “Dollar on its last days”

My comments to the above are mostly, “NO!”  Some more than others, but the point remains.  These will not happen, at least in any manner like the headlines.  How sure am I?  No one can be 100% positive, but what took Americans 200+ years to create is not going to crash into a brick wall.

Much more to come next week.  Economics will be discussed in the “Bizarro” fashion.