Testosterone in the Financial Markets

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Too much testosterone in the room? Heard that all before. It’s the adolescent-like traders that were battling with levels of testosterone and cortisol, pounding on their chests like Tarzan swinging through the trees in the jungle of the financial markets that brought the world down too. It wasn’t just the crazy race for money and money-spinning winners that were never going to burst. It was proved in 2008 by the University of Cambridge that the movements of the markets are correlated to levels of those two hormones in traders’ bodies.

Testosterone is associated with aggression and sexual behavior and cortisol is a stress hormone. Two scientific researchers took swabs from saliva glands of traders over an eight-day period to show that there was a direct correlation with rises and falls in the levels of those to hormones which affected the way that they acted and reacted on the financial markets. The results showed that traders made most money when they had the highest levels of testosterone in their bodies. We get told that you have to be calm and collected and rational, a good thinker and a quick snap-second decision maker when working on the financial markets. But, the research showed that while the people might be outwardly calm, their testosterone levels inside were bubbling at boiling point. What’s worse is that prolonged levels of testosterone and cortisol lead the prefrontal cortex and the hippocampus to shrink. It’s precisely in those two areas that the brain associates factual memory and decision-making. So, traders end up with “learned helplessness”, meaning that actions taken in risky situations will have no effect on the outside world; they simply don’t matter.

Remember that the stock market ended 2013 with a confetti of champagne-popping orders to buy, buy, buy. It hadn’t been that bullish with record highs for the S&P 500 in 16 years. It was the best year for the Dow Jones Industrial Average in 18 years. What a great year it was in 2013The Federal Reserve and the economic policies of the US government have strongly shown that it is believed that the solution to macroeconomic problems in the USA are to be found in new inflationary bubble-attitude, bringing about the inflation of asset values, so that the landing from the last financial crash in 2008 would be a little bit easier. But, it’s precisely the Federal Reserve’s liquidity policies, the loose money, the free and easy Quantitative Easing that has inflated another bubble from a bubble burst. In the meantime, the testosterone levels of the traders have been shooting through the roof since they have been on a winning streak. They have definitely entered the period of “learned helplessness”. Their actions (in their opinion), doped up to the eyeballs on testosterone, allow them to believe that they will have no effect on the world.

Since the worst lows of the financial crash that were seen in March 2009 for the S&P500 Index, we sit back and witness the 180%-increase in the market. It’s been the longest and the highest bull market in history, hasn’t it? Stocks are priced to give below-average returns in the coming months and that’s a signal if ever there was one of market performance (take a look at the Shiller P/E 10 ratio; it’s above 25, while the historical average is 16.5).

Another obvious identification of testosterone and cortisol causing “learned helplessness” is the results of sentiment surveys. When sentiment surveys are in extremes, then the market tends to move in the opposite direction. Today Investors Intelligence Sentiment Poll shows that bulls outnumber bears by 45% on the financial markets these days. That’s extreme. That’s a bad sign for the financial markets. The guys believe that their actions simply don’t matter any longer.

More women and less testosterone would mean a whole lot less of “learned helplessness” on our hands. Cocaine-induced party-animals with primal instincts that have been cut off from reason because their testosterone has gone into over-drive and their cortisol has cut them off from reality all thrown into the financial markets and multiplied by thousands means that the crash-landing will be worse this time. Even Christine Lagarde of the International Monetary Fund stated that the financial crash would never have happened had the Lehman Brothers been the Lehman Sisters. The risk profile of women means that they spend less and save more. Certainly, there may be less money to be made, but there may be less to be lost too.

Maybe someone has realized that this is the case today. We’re slowly changing the way we look at women and the representation that we have of them. The financial services industry has cottoned on to that and there are more women according to researchers in financial ads these days (whether they be clients or part of the workforce). Pamela Grossman of Getty Images has shown that there is an increase of 20% of women in adverts linked to the financial sector today compared with five years ago. But, it’s not sufficient to just show cognitively-adept and good-looking women that are high-flyers in adverts related to the financial sector; that isn’t going to change anything. It’s recruiting them also in the world of finance. We haven’t done that. According to studies by the Boston Consulting Group men are interested in plain old wealth, while women are interested in long-term financial security (not only for themselves but for their families). But, the financial sector is male-dominated, testosterone-induced and helplessly rigid.

Women in advertising are just marketing techniques for the masses to fool the consumer these days; yet again. The financial markets are still testosterone-reeking bull-pits where men have lost touch with reality.

Originally posted: Testosterone in the Financial Markets

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