Students of market theory like to explain market forces in terms of just two emotions: fear and greed.
Fear keeps investors from overpaying for stocks that have been bid past all reasonable expectation. Greed guides investors and capital to the most promising opportunities.
Of course, these are emotions best experienced in moderation! Too much fear can punish stocks by driving them below all reasonable negative expectation. Too much greed sends stock prices soaring to unsustainable levels with money chasing diminishing opportunities.
What emotion is driving investment decisions today?
CNNMoney has a Fear and Greed Index that takes the pulse of the investor mood. It is made up of seven indicators that show what emotion is dominant in the market now.
Below we’ve summarized their latest findings, which are troubling to say the least.
Spoiler Alert: CNNMoney says “extreme greed” is where investors are right now.
Market Momentum: EXTREME GREED
S&P 500 is currently almost 5% above its 125-day moving average.
Stock Price Strength: EXTREME GREED
Stocks are hitting 52-week highs and lows on the NYSE at a rate above average.
Junk Bond Demand: EXTREME GREED
Investors in low quality junk bonds are implementing higher risk strategies.
Safe Haven Demand: EXTREME GREED
Investors are rotating into stocks from the relative safety of U.S. Treasuries.
Stock Price Breadth: EXTREME GREED
During the last month, more of the NYSE’s daily volume has advanced than declined.
Put and Call Options: NEUTRAL
Levels of put buying by investors the past two years has been low, but is still just a neutral signal at this time.
Market Volatility: NEUTRAL
As defined by the CBOE Volatility Index, overall market volatility isn’t at an alarming level. Perhaps that is to be expected with a market that hits high after high?
Though not every needle is in the red zone, there is plenty to think about in the readings of this CNNMoney Index. We are clearly in a period of extreme greed, which can only drive the market so high.
The lesson: be fearful when others are greedy and greedy when others are fearful.
Over the last two years, the stock market has enjoyed a meteoric climb. But some experts like Tiger Management co-founder Julian Robertson say the U.S. stock market is in a bubble and blame it on the Fed’s interventionist policy.
Could Black Monday happen again? Today, the stock market is more fragmented, regulations are more inflexible and instantaneous computerized trading is more prevalent.
According to CNNMoney, levels of greed can hardly go much higher. If fear gains the upper hand in the markets, owning physical gold could help diversify your portfolio during the next Black Monday.
GOLD IS THE BEST LONG TERM STORE OF VALUE ACCORDING TO GOLDMAN SACHS
Goldman Sachs recently advised investors in a research note that precious metals remain a highly relevant asset class for their portfolios.
Goldman Sachs reaffirmed their belief in these principles:
1. Gold as an asset class is “still the best long-term store of value out of the known elements.”
2. Investors’ use of precious metals through time is not a historical accident and will continue.
Though currency experiments make headlines every day, Goldman prefers gold to crypto currencies like bitcoin. In their view, digital wallets can be hacked and still face significant regulatory risks.
The investment bank said that gold is clearly better at holding its purchasing power and has much lower daily volatility.
WALKING A RATIONAL PATH IN AN IRRATIONAL MARKET
Despite our best efforts, human beings remain highly irrational creatures, a fact that professional investors have long exploited.
We urge you not to stand by when it is the perfect time to be investigating your alternatives.
Greed is rampant today and the carnage from the next stock market collapse could last for decades. This is an especially relevant question for everyday Americans with TSP accounts or ordinary IRAs who are counting on some golden years ahead.
Year in and year out, no matter who sits in the White House or what is going on in the world, gold remains a cherished safe-haven asset like none other on earth. Digital money can be hacked and stolen, but when you own physical gold your assets are safe in your safe or Gold IRA.
Physical gold and silver can help cushion the overall blow when fear takes over from greed.