If you look at my Yahoo finance charts on the right, you will several index charts of different countries. What do they all have in common? They all follow a similar pattern. Why? Because stock markets are affected by the same global forces of supply and demand. This is why it’s important to not only understand the company you are investing in well, but also the environment in which it is operating. Traders don’t only need to understand this, they must also have a view.
So here’s my question of the day: Is the recent market turmoil a temporary shock or the beginning of a larger systemic problem?
Most people I work with think it’s a temporary shock. This is because fundamentals are still good (i.e. asian GDP growth and trade volumes) and the dangers that are around today (i.e. sub-prime blowups) are well spread out and not concentrated in a particular group. But for a different view, here’s a link to Roubini’s blog, where the fear is that several factors will cause banks/funds/consumers to tighten their belts and stop spending so much crazy money. If you fall into this camp, then it might be time to revisit your asset allocation. Remember to always cross check your opinions and anything you read like this with what your stock prices are telling you.
Me? I’m already sitting on a ton of cash and and am still wishing for things to blow up and become cheap again (have been for the last year!)……
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