As I sit here to write this the Dow Jones has lost over 20% of its value year-to-date – most of it in the last month or so. The news is full of doom and gloomy scenarios about how terrible the economy is. Politicians are telling us how the credit markets are “seized up” and how they – and only they – are going to fix it.
But, for some reason, I have a hard time buying it all. From where I sit things aren’t really looking all that bad. I still see people going to the stores buying stuff, I haven’t seen mass layoffs or huge rises in unemployment. Heck, I am still getting offered credit cards every time I turn around and my friend just closed on a house (and he has average credit at best) – so how are the credit markets “seized up?”
We have to keep in mind that the market isn’t the economy. It is the collective expectations of the expected value of companies. We all know that humans are emotional, the market is no better and in some ways worse because it is susceptible to crowd behaviors.
Every time the politicians tell us that credit markets are bad and they need to do something it scares investors. Every time government agencies act in unison across the globe and do something drastic it scares investors. What we are seeing right now are investors that are uncertain about what is coming next.
I’m very scared – but not about the economy, about what the perceived state of the economy is going to force the government’s hand into doming something very, very stupid that will plunge us into another Depression. Despite
If the Bush Administration would just come out and say, unequivocally, that they still believe in markets. That there will be no more massive government intrusion into private business. That things look a little bleak, but it will recover and this isn’t really the end of the world. If Bush would do all of these things I think we would see an end to the wild swings in the market that have been the norm for the last couple of weeks.
Markets hate uncertainty and at this point we have no idea what they are going to do next.