|A Few Really Bad Market Days Cause Fear And Dispair|
- Many of the investors in stocks today are new to the game and brimming with enthusiasm
- Many of these newbies were playing fast and loose and strung out on margin
- Few bears remained in stocks following a surge in stock prices that left them bruised and battered.
- The fact stocks were greatly overvalued leaves a great deal of room for a pullback.
- Concerns of inflation, rising bond prices, and central banks beginning to cut back have suddenly surfaced
Tops have been called in the past but every time the market or the economy began to stall another central bank stepped into the breach kicking fresh support to push markets forward and ever higher. Many investors have assumed the belief markets simply will not be allowed to crash because of the damage it would cause to the world's financial institutions. The reality, however, is this bull market has gotten long in the tooth and exceeded the average length they normally run. We should also remember this market has far exceeded upside expectations while the economy has in many respects has merely regained the ground lost after 2007.
Markets are emotional, how deep this pullback or correction will become is still unknown, however, many traders have been caught sideways and been dealt a solid blow. In this particular pullback, the longtime group of investors that have done very well and scream "buy the dip" during pullbacks in the past has joined with those with a "fear of missing out." It will be interesting to see how they handle adversity after being banged around a bit and a degree of uncertainty has now entered the picture. Both these groups have counted on central banks supporting prices and even going so far as buying stocks to drive this market higher. The central bank's large foray into stock ownership is just one indication of just how messed up and flawed the global markets have become.
|In Times Of Financial Turmoil Values Take Wild Swings!|
History shows that when markets have indeed started a long-expected selloff it is not uncommon to see attitudes towards where to invest turn on a dime. We might witness a major shift in the value of one investment over another as investors seek firmer ground and a safe place to stash the wealth they have left. Derivatives, currencies, plunging stock prices, air rushing out of a bond market bubble, how debts are structured, and the timing or direction from which problems arise are all elements that must be considered. Several factors determine just how much influence can be applied to how current economic policies unfold.
In a situation where markets become unhinged the metaphor "let the chips fall where they may," could become the rule as investors scramble to get out of the way. This would mean things like the size of the chips, the rate or speed at which they fall, and the number of chips in the air may make them uncontrollable. We could find ourselves up to our neck in chips in a blink of an eye, at that time all bets are off as to how successful efforts to stem a catastrophe might be. If the financial overlords lose control we may see the final stage of a global shakedown become very chaotic and wild swings occur as markets seek sustainable valuations.