Fear and Greed

This past week, the mood changed in the stock market and the stock market indexes rose about 3%. For the previous 4 weeks or so the stock market had a downward trend. So what happened to cause this sudden shift in direction? The best way to describe it is a shift in emotion from fear to greed. Certainly, economic data did not shift significantly during the year. At the end of the newsletter are some Winter Olympic facts for your enjoyment.

It seemed that all of a sudden this week anything that looked like bad news was brushed aside while only good news was being considered in an emotion of I must buy to avoid missing out. This is just the opposite of what had been happening where all of the good news seemed to be ignored while bad news was on center stage in an emotion of I must sell to avoid losing money. As emotion shifts, investors with a short term time horizon either buy or sell based upon emotional sentiment. This activity is very important to the brokerage and investment companies that only make money when people buy or sell. The problem for a long term investor is you can not predict when the emotion will change making it virtually impossible to time the market.

In other news, the Fed made a surprising move and raised the discount rate charged to member banks on emergency loans from 0.5% to 0.75%. This is a positive sign for the economy and confirms the position of the economy in the economic business cycle. From an investment viewpoint, it makes investing in bonds more challenging as money market funds still do not yield a suitable return while it makes holding more longer term bonds riskier.

Brokerage and investment companies report money flow in 4 mutual fund categories: money market, stocks, corporate bonds, and government bonds. Money continues to flow from money market funds into all other categories a negative indicator for money market funds. It still seems like it is early in the business cycle to invest in money market funds.

Winter Olympic Facts:

•The first Winter Olympic Games were held in Chamonix, France in 1924.

•Norway has won the most medals (263) at the Winter Games.

•The five Olympic rings represent the five major regions of the world – Africa, the Americas, Asia, Europe and Oceana, and every national flag in the world includes one of the five colors, which are (from left to right) blue, yellow, black, green, and red.

•Up until 1994 the Olympics were held every four years. Since then, the Winter and Summer games have alternated every two years.

•No country in the Southern Hemisphere has ever hosted a Winter Games.

•Only four athletes have ever won medals at both the Winter and Summer Olympic Games: Eddie Eagan (United States), Jacob Tullin Thams (Norway), Christa Luding-Rothenburger (East Germany), and Clara Hughes (Canada).

•Nobody has won more medals at the Winter Games than cross-country skier Bjorn Dählie of Norway, who has 12.