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Market Psychology, the NASDAQ Bubble Psychology & Crowd Psychology

"In individuals, insanity is rare, but in groups, parties, nations and epochs it is THE RULE." 
                                                                                      ---from "Beyond Good and Evil" by Nietzsche

                                                                        1996-2001 NASDAQ CLIMAX TOP

  

    The above Psychological Chart, created by James Schildgen in 2001, shows all of the financial emotions and attitudes of any "Crowd" of a giant bull/bear market cycle. It was originally created in conjunction with the 1975-86 gold bull/bear price spike 'Buying Mania' or "Bubble." Having handled so many clients, read so many newsletters and books on market trading, it has became second nature in understanding the attitudes people have at different segments/levels of price appreciation or collapse. To the editor's knowledge, it still is not known or accepted yet in the financial industry. But several analysts have copied it with no credit given. I love this industry.

     The sharply increasing bullish move or Buying Panic becomes a "buy at any price mass consciousness." It started with a simple lust for money - HOPE, and proceeds on to become a "RELIGION."  It is described by financial journalists as a pure GREED  or buying MANIA. Currently, the condo and residential housing market is exactly in this phase of Mass Delusion as I write (November 2005). Totally artificial and false as it was financed (created-) by the international bankers at this time, to buy off the focused interests of citizens so they don't mind their country's federal leadership being stolen in false elections (proven, Diebold Electronics, etc.), two false wars entered into (Afghanistan and Iraq, with Iran and Venezuela next in line) and generated over a trillion dollars of new federal debt. These three things your children are going to suffer through, pay for and be kept in deep debt, along with seeing their worthless paper "legal-counterfeit" money disappear (inflation=tax on money assets) within their lifetimes. Then a new type of worthless paper (non-) money will be offered to the lawmakers for passage, bribes passed, and the whole game continues again.

     The climactic Blowoff or Buying Climax immediately turned into a rout of the long holders or bullish positions liquidating, to sell at any price. This Selling Panic is exactly an opposite of the Buying Panic. TOTAL FEAR IN A LOSS SITUATION! As prices drop sharply, it becomes a PANIC SITUATION on the part of the participants. Unless you have lived through a buying climax, calculating dollar values fluctuating (or any other currency you may  be in love with), you cannot fathom the depth of insecure emotions and immaturity people go to in their base emotions. The joy of being a retail broker, sitting there with immature clients trying to rationalize market behavior from a book they read some ten years previously by an economist/non-trader, to what is staring them in the face, you haven't lived. Now, multiply this by the hundreds, and you know my training as a financial psychologist.

      I saw one man, who I had approached in trying to get as a client, later on lose over a billion, one hundred million dollars, in two months' time. My being in hard asset investing as a primary focus many years ago, (see my listing in "The 1980-81 Who's Who of Hard Assets"), I learned that certain generations of people have certain attitrudes that set their patterns of behavior on track for either their success or their downfall. The man was Bunko Hunt (Bunker Hunt Jr. of Dallas, TX ), and successfully played the markets for major price moves as a speculator. Sugar, silver and then soybeans was his baliwick of trading. (baliwick = area of expertise; coming from baliff or sheriff [tax collector/Old English], area of jurisdiction.) But when his normal avarice turned to extra-deep greed, he actually manipulated his holdings of silver to exceptional heights on a percentage basis. The last 29 trading days of silver futures, before it was collapsed by the Comex's board of governors' actions, there were 25 days of limit-locked daily up-markets. The spot price, which has no price limit, went farther up than the limit months. This created a short-panic situation on the part of the position shorts, mostly commercial hedgers, having to borrow huge sums from their banks to cover daily losses. Because they couldn't offset their positions, each day being a "limit-bid", "limit-bid", "limit-bid" cash situation with the pool size INCREASING, turned them into panic-stricken folks. After January 21st, 10:00 PM Monday, the Comex's board of governors issued a "Long Liquidation Only" order, which sent all longs into panic-selling mode.

      The nine week collapse of all the metals, except copper, caused a retrenchment of brokers, clients and investment house positions into a liquidity crisis. Five commission houses were heavily involved with Mr. Hunt and his precious metals squeeze - Continental, Merrill Lynch, Bache, A. G. Edwards and a fifth. The total 'margin call' for the sharp retrenchment of prices, putting him on the defensive, was over $ 600 million, not counting his London operation of his buying campaign. Worse of all were the hopes and dreams of all the little amateur traders who were long silver, gold and platinum. Single positions had generated profits in as much as $ 200,000 per single long futures contract. If they averaged up or had bought late in the game, they were wiped out easily. Bache's margin call portion alone was $ 300 million. And with only $ 120 million in equity, were at risk of not being around if liquidation prices and the selling of his long bar bullion positions had not been orderly. They could have been wiped out in just a few weeks. I know because I was there, as a V.P. in the Chicago office.

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                                                      209 S. LASALLE STREET BUILDING

      This famous building in downtown Chicago was renovated from funds gathered via the Bond pit, by Tommy Baldwin, at one time the leading floor broker in the 30-year Bond pit at the Chicago Board of Trade. In the early 1990s, Tommy got up to over $ 100 million. Two divorces and a bad business dealing, he's right back to where he started from.

  

Picture: Courtesy, the editor.

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                               UNIVERSITY OF MICHIGAN CONSUMER SENTIMENT

       Following is the oft-reported Consumer Sentiment economic report, created in more detail and timely fashion than the U.S. Department of Commerce's report by the same name. More interesting is the fact that, back in the 1980's, I discovered that, from that time backwards of course, every major price reversal of the stock indexes were matched almost perfectly by the C.S. report. That means, the actual survey and the questions poised to the X-number of citizens they called at random, were making decisions in parallel to the persons trading stocks. The actual price levels of stocks, best presented in stock indexes and averages, therefore confirm and prove that everyone including working class persons who haven't a chance in hell of ever seeing a stock certificate in their lifetime, think exactly in sync with the higher middle class as to WHEN they turn optimistic (bullish in stock parlance) or pessimistic (bearish) en masse. This is the essence of CROWD PSYCHOLOGY.

      I also have followed enough foreign stock indexes (over 130+) every month, to know that this is a worldwide phenomena, with variations - tax effects, different accounting periods, hemispherical differences, etc. By comparing the strongest stock indexes to the weakest worldwide, I think a good fund manager can add anywhere from 5- to 8 % additional gain on a quarterly basis by just using this one axiom or trading rule.

      Because of extensive research done, this author reverse-engineered the turns of both price trends (in stock indexes) as well as the Sentiment Index (of consumers) back to their source, and successfully applied them to equity analysis ever since.


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                                                FINANCIAL ATTITUDES

      The 'financial attitudes' and 'financial emotions' of the 'Crowd' are a byproduct of a few human interactions and activities. There are also the elements of the Sun and Moon configurations, to the Earth as a prime directive of your bioenergy factors. While it relates to astrology (the science of all things exogenous to the Earth, interacting with it), it is more scientific in its reality, tied to natural energy flows and factors. Your bioenergy alone tells me more about how you think than all the words out of your mouth ever will. The main source of your money values are:

      1) Socio-economic conditions -

      2) Attitude and Belief Functions -

      3) Your family position or Birth Order -

      4) The Weekly-Solar order -

      5) The Yearly-Solar order -

      6) Your Bio-Rhythms -

      7) Your religious- or Cultural Training & bias-





 
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