5th August 2011

Markets in Summer meltdown

Seemingly every year around this time we see headlines like this so I guess we should really be used to it.

And why? There are many differing theories on why, but one that keeps coming back to haunt us is the "grown ups have gone on holiday leaving the kids to look after the house" theory.

With the parents away, all kids take advantage of their newly found mixture of freedom, independence and total lack of responsibility. They ask their mates around, smoke, drink, maybe even take on board a substance or two. The result is, as every parent will know, a complete breakdown of order, the house is in a mess and then along comes a crisis- maybe a gas or water leak or an electrical failure and the kids are lost as they have had no experience in how to react in a crisis.

So, when we see comment like “Global markets were in full retreat as investors expressed both mounting panic in the Eurozone and pessimism about the US economic recovery”, what is actually going on?

Are the markets as unstable as is being suggested? Is it all America’s fault or is it the ECB’s fault playing pass the parcel with Euro-debt or is it because those looking after world economies and market trading while the bosses with more experienced heads are on holiday not up to the job?

Is regulation helping to avert any meltdown or just adding to the problem or is it that the Hedge Funds are at it again with gusto?

As ‘poster’ John Morgan observed “Just goes to prove the "tongue in cheek" industry saying that the value of your investments can fall as well as plummet! But, hey, when we hit the bottom, whenever that is, it should be a good buying opportunity? Anyone who took heed of the market warnings about a fortnight ago and liquidated to cash should do very well”!

Whatever it is, if markets can react in an almost Pavlovian way to any sign, large or small, of bad news something is very wrong with the system.

One thing is for sure though, no matter what the outcome, someone somewhere will be making a lot of money in this meltdown, no doubt having a good laugh at the market panic it has caused or has benefited from.

Investments, Panacea Comment