Nov

8

As you may be aware, shock and awe is a military doctrine based on the use of overwhelming power and "spectacular displays of force to paralyze an adversary's perception of the battlefield and destroy its will to fight". After the second consecutive day plunge in the markets with more than 10% lost, this was the feeling I had yesterday looking at the closing prices: shock and awe.  Your perception is paralyzed, you are not able to fully understand the context in which you are operating and therefore to make rational and informed decisions. Your will to fight is destroyed and you are simply brought to turn away your account statements in disgust.

Is this the result of a campaign built to shake weak hands (and minds)?   Most of us are vaccinated by many other bear markets and crashes, such as 1987 and 2001-2002.  Something really spectacular was needed this time to shake the resolve not to give away stocks at these ridiculous prices.  Well, "they" are doing it.  The public is shaken, hit by bad news on all sides and sudden panics in the markets. The public is selling at any price, stocks, mutual funds, bonds. The average investor cannot see the big picture, overwhelmed by negative information campaigns and catastrophic predictions.

It is difficult to resist, but I will try not to fall victim of this "shock and awe" campaign.  I will not put my stocks "for sale" at these levels.  On the contrary, I will buy new dips. Markets forces are already at work to adapt to the new situation, economies will find eventually a way to deal with the recession. It will be painful, but it will not be the end of the world and capitalism.  We will continue on the secular path of growth. On a different note, I hope that the governments' intervention to deal with dysfunctional markets and the collapse experienced in the past weeks will not kill the patient instead of curing it.   

Vincent Andres asks:

You wrote "the public is shaken". I'm wondering how much of the market is actually in "public" hands ?

If I compare what people (the public) save on their own willingly, and what the public must save in pension funds in mandatory way, I guess the public's direct participation in the markets is much lower than e.g. pension funds. So, I doubt public is now shaken, public has probably gotten out since already several weeks. Of course, this may vary from country to country.

Riz Din notes:

One public, on the other side of the world, seem to be buying with abandon as prices flirt with their lowest levels in a couple of decades. From Bloomberg .

'Nov. 7 (Bloomberg) — Japan's individual investors, armed with more than $7 trillion in cash, piled into shares trading at their cheapest valuations ever last month, even as the global credit crisis prompted overseas fund managers to sell out.'

I'm not sure about the choice of quotes in the article though:

'Individuals are the most clever out of any investor group, in my opinion'

'…they're not the kind of investors who get carried away with optimism and keep buying'
 


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