With all the chaos in the global markets in the past few days, one is constantly reminded of perils of complacency. There are way too many landmines, waiting to explode, if you don’t tread carefully. Couple of blogs ago, I had asked the question, “Is it time to short the markets?” The debt problems in the European Union (EU) seem to slowly unravel and there is a serious threat of this contagion spreading. So, finally, the time for a serious correction could be here. That doesn’t mean it is going to be a one-way rush to the downside. We could see intraday rallies, only to trend down until a substantial correction makes this market more in line with the prevailing fundamentals.
I am not going to regurgitate all the current macro issues that are plaguing the market, which I am sure are being repeatedly shown in every form of media out there. What I want to show you is a picture I found at www.financialarmageddon.com. The title of the picture:
Accident Waiting to happen
The BP “oil spill”, Massey’s “mine explosion”, the “riots” in Greece in the aftermath of Government’s announcement of austerity program…are the accidents we are currently witnessing. But , as the picture suggests there are bigger accidents waiting to happen, which are more problematic. Spain, Portugal, Ireland, UK…the list goes on. As I explained in that blog on shorting the markets, bad news have a way of coming in clusters and they suddenly look so ominous and magnified that market reacts in fear. That’s when stampede occurs. I don’t think the fear is still at that level and once again governments of the world may come together to provide a backstop, but irrational fear is a force that exerts itself at a time when most investors are asleep and complacent. That scares me, as all the good work by the authorities to bring this economy back from the brink may go waste in no time. And, that my friends, may take us to the much-talked about “double dip” in this fragile economy. If that happens, America, brace yourself for real tough times. Already jobs are not easy to come by, and one more leg down in the economy, spells real trouble for those who are already struggling.
My hope is, underneath all these chaos, a sound economy is emerging and no matter how difficult the situation is, people stop fearing an “end of the world” scenario.
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