Shrink Rap: Are the Bulls in Denial?

The current crisis makes it hard to be rational right now -- especially in the market.
Publish date:

Dr. Hendlin: I very much enjoyed your insights and comments in your Oct. 24 column, "Better to Miss a Chance Than Lose Money." Here's a related question regarding something that's been on my mind a great deal the past few weeks:

Am I just a dyed-in-the-wool cynic, or does it seem to you that the market, and in fact much of America, is in a some kind of state of denial over the new levels of risk that have been introduced since Sept. 11? True, Pimco's Bill Gross, economist John Makin and a few others out there agree with my assessment that there's a whole new constellation of uncertainty and risk facing us now, and that things certainly haven't been made better since Sept. 11, on a fundamental basis, but it appears that others simply don't wish to see it that way.What do you say? To me, the wild action in tech and certain other shares the last few weeks seems even more insane than it did from late 1999 to March 2000, with many market participants evidently choosing to drown their worries in the Fed's punch bowl of liquidity rather than face reality.And it isn't just the stock market, in my opinion ("Yeah, that anthrax stuff is scary, but a new Ford Expedition with 0% financing will make me feel better!"). Thanks for your thoughts. -- C.P.T.

Shrink Rap:

To begin with, a disclaimer: I'm a psychologist, author, philosopher and trader -- not an economist, market analyst, financial planner or money manager.

Please keep that in mind

when asking me for advice on specific allocations in your portfolio or for my views on factors influencing the market.

Of course, I understand there is some overlap among disciplines; the cross-currents of the market are influenced by individual and collective psychology. Accordingly, we should expect the market to echo some of the tumult and craziness of these strange times. The market always reflects both the short- and longer-term insecurity, hopes, fears, expectations, denial and greed of the larger culture. But at times, the gyrations seem to get even more pronounced.

This is one of those times.

How much of this new, uncomfortable reality can traders and investors stand? How long can they tolerate feeling threatened and freaked out? Those with a higher tolerance for this reality perceive their more sanguine colleagues as being "in denial," as the latter, like so many Humpty Dumpties, go about trying to put their financial worlds back together again.

I know some of you love the semipredictable monthly and seasonal market patterns. But right now, in the midst of this ongoing national crisis, our collective psyche may disrupt expected market behavior. As we are all forced to reconstruct an imagined future that has literally been blown away, investors will respond to the changed circumstances with varying degrees of what the author of the above question calls "cynicism" and "denial."

Both points of view can be justified by current conditions. An optimist might argue that this post-Sept. 11 surge may represent the beginnings of a shift in thinking and trend. The technology sector, in particular, had been beaten down so low for so long, there is no place left for it to go but up. The market may be trying to look forward a few quarters, out over the valley of crisis and economic doom and gloom. And saying that the upward spike in October was anywhere near as "insane" as the true prolonged mania we experienced during the period from early 1999 until March 2000 is simply an exaggeration.

The pessimistic, more cautious view is that the recent upturn is just another head fake, another bear market rally, which will again, with some perspective, be seen as sucking more capital into the downward vortex. Technically, we're still in a bear market.

The reader asked what


think. Well, the 30-year bond just got trashed: We're now dancing on the long end of the yield curve. Who can resist the enticing music of even lower rates in refinancing home loans? Or buying a new car at 0% interest? If this is denial, I'm all for it: Anything that can be done to stimulate an economy in recession should be viewed as benign. Anything that promises us some kind of future and a life raft of stability in a sea of "highest alert" uncertainty can't be so bad.

Steven J. Hendlin, Ph.D. is a clinical psychologist in Irvine, Calif. He has been in private practice for the last 25 years, investing for the last 20 years, and actively trading online as a swing trader and long-term investor since 1996. He is the author of

The Disciplined Online Investor

recently translated into Spanish. He is pleased to receive your comments and questions for publication in his public forum columns at, but please remember that he is unable to provide personal counseling or psychotherapy through the mail. has a revenue-sharing relationship with under which it receives a portion of the revenue from Amazon purchases by customers directed there from