Again today the stock markets cratered, globally, despite lots of intervention and reassurance by financial regulators. Last week’s $700 billion bailout and ban on short selling were not not enough. This week’s governmental purchases of commercial paper were not enough. And even today’s promise of interest rate cuts —which analysts said the market was looking for — had the opposite effect. Markets Plunge Despite Hint of Rate Cut [NYTimes.com].
These are frustrating times. Most of the plunge is driven by mob psychology, where a dip turns into what investors hear as a call to panic. But the fundamentals have not changed and, ironically, it is developing markets — with the most future promise and highest growth rates — that have perversely taken the greatest beating in this down cycle. The “technical” analysts have their charts out, to no avail, and we can all agree that the 1973 hypothesis that Wall Street is a “random walk” is no longer valid.
Perhaps this is the price we pay for democratizing investment. With everyone invested in the markets, what used to be ripples are now typhoons or tsunamis!