The third quarter is in the books, S&P +5.8%, Nasdaq +6.3%, Crude +8.2%, Gold +10.9%. Ben Bernanke has fueled up his helicopters, now about to dump additional $40 Billion a month into mortgage bonds, promising to keep interest rates at virtually ZERO till 2015 and likely way beyond.
So what does the public do in the third quarter? The public continues to be motivated by fear, moving more money from stocks into zero interest paying bonds. As of September 19th, monthly reading investors moved $32.4 billion into bond funds and $6.8 billion into money market funds. U.S. Diversified Equity Funds macro-group experienced its sixteenth consecutive month of net redemptions.
Of course the public could be smart here, maybe we are about to fall off the face of the earths, Israel will attack Iran and Europe wlll fall into massive civil arrest, but the point is, that the motivation behind the public actions in most cases is FEAR, and not economic rational of earning zero interest rate in bonds.
FEAR will hurt you, it will keep you from moving forward in life, whether your goal is to be a better trader, basketball player or entrepreneur. As a trader, speculator or investor we must follow a plan, successful speculators are able to follow the plan despite their emotional baggage, or emotional fears.
If your plan directs you into money market funds, great, but if you are there due to fear, attempt to control your fears by defining the worst case scenario, either with a stop loss, or structured long gamma (long option) trade.