June 21, 2019 | 02:24 AM


13.10.2008Fear rules

There has been nothing logical about the way the stock market has been gyrating over the past several months

There has been nothing logical about the way the stock market has been gyrating over the past several months. The psychology of crowds has taken over as fear feeds fear causing even the most resolute optimists to run for the door.

Are you caught up in the panic? Have you made any financial decisions based on the fear of impending economic doom?

A crisis of confidence in the global economy has led to the unprecedented action of the Federal Government proclaiming that it will safeguard bank deposits and European leaders coming together on a bank rescue plan.

Has this reassured you? If you are one of those who withdrew cash from a small bank or the equities market in favour of one of the ‘big four’ are you considering reversing the move?

Shares bounced back (at 1.00 PM today the ASX 200 had increased by 174 points to 4,134) after Prime Minister, Kevin Rudd announced that the government will guarantee $600-$700 billion deposits in Australian financial institutions and all borrowing by Australian banks and other deposit-taking institutions from overseas.

Yet some commentators are maintaining that human psychology is so perverse that the Federal Government’s guarantee will promote further nervousness.

I guess that’s not such an out there claim considering Mr Rudd’s announcement included the comment that “this global financial crisis has entered a new and dangerous phase” and a warning that we’re about to enter a period of slow growth and rising unemployment.

On Friday Wall Street’s fear gauge, the Chicago Board Options Exchange Volatility Index (the VIX), hit a record high as US shares plummeted.

Last week Andrew W. Lo, a professor at the Massachusetts Institute of Technology who has studied investor behaviour told the New York Times that fear is a much stronger motivational force than greed.

Mr Lo said. “The loss of $1,000 has a much bigger impact than the gain of a $1,000.”

Do you blame the media, politicians or economists for fuelling the fear factor for their own agendas?

Have you found your hand moving towards the panic button yet? If not, how have you avoided its far-reaching tentacles? Have your say - discuss this now on FatCat's MoneyConfessions

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