Saturday, January 25, 2014

Why the Market Swoon?

Stocks cratered this week -- down more than 3.5 percent.  The decline was global and more pronounced in less developed countries than in developed countries.  Why?  And, what's next?

According to the media there were two possible reasons for the debacle:  (1) evidence of a slowdown in China; and (2) fear of the Fed's plan to taper.  Those two are related since (2) is quietly suggested to imply (1).

The truth is that no one has any idea why the market chose this past week to roll over.  This is one of the many stock market moves for which there is no obvious explanation.  Those interviewed by the media cannot respond truthfully: "Who knows?"   So, they come up with simple minded explanations that cannot possibly be causative.

Actually, there was no important or significant news regarding China or the Fed last week -- zero.  The truth is that markets seem to do whatever they want to do whenever they want to do it.

Long run, stocks go up.  That's about all we know.

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