The past 6 months (Sept ’08 to Mar ’09) have been a test – a test of confidence. Many multi-billion-dollar organizations (hedge funds, investment banks, bond investors, etc) had moved big into credit default contracts and starved the housing and investment markets (last week there were over $28 Trillion in credit default contracts, in short funds, in ultrashort funds, short positions in stock, and a record $9.3 Trillion in cash on the sidelines). They knew that if they got some to believe that the housing and debt markets were falling, they could actually get the markets to fall even more. The media has been an unwitting stooge, putting the most sensational negatives into their headlines and not investigating all the data. The media has been the driving force to get everyone in synch. Everyone is a market timer nowadays and all were waiting for the bottom.
This is like a test where someone is taken to an unfamiliar country and told that people don’t like him. He begins to believe that people don’t like him and acts unfriendly. In turn those people are unfriendly back to him. The rest of his family hears his stories and also begins to act unfriendly. The downward spiral continues. Some people will accept what they are told and not look around on their own. There may not have been much more initial unfriendliness than usual, but the perception can destroy lives. Hedge funds know that every problem which can be pushed further is an opportunity – that is true when you are an opportunist. They are masters of psychology and manipulation.
This has been a test in confidence to see how many companies would reduce capacity and employee-base and slow consumer spending and get the horror stories out in the media, increase unemployment, cut themselves down, etc. These are the same organization that convinced people that oil is THE safe haven and got it to $120/bbl and to $147/bbl and stated it would be at $200/bbl by end of 2008, then they shorted it down to below $40/bbl.
As this crisis in confidence wraps up, we will see the greatest stock and housing investment period in our lifetimes over the next 6 months. Many will be left behind because they were tricked into getting out the market or getting out of their homes. Don’t let that be you.
The test has been a remarkable success; expect to see more of these events in the future where groups of 'investors' try to collapse confidence.