It’s a somewhat out of body experience to watch plunging numbers on a screen, seemingly out in control in free fall, and realize over a trillion dollars in value is being destroyed. At least for the time being.
Early on Friday one thought that the quick 200-point loss in the Dow, after already a week of losses, just had to change. And it did. By the end of the day the Dow was down 530 points. Ouch. But the consensus seems to be that this drop is a good thing. The thinking is that the market, as it always does or it wouldn’t be the market, got ahead of itself. Periodically the reins have to be pulled in and we have to be slapped upside our heads. And, all things being equal, we cautiously step back in and the market begins its ascent once again.
But are all things equal? Probably. The American economy is chugging along, especially in housing, and the emerging markets have been challenged for quite some time now. Really nothing new. China is likely a basket case but that’s probably been true for quite some time as well. And being the even-handed, free market, transparent individuals that they are not, you can bet your last dollar the Chinese will be pulling out all the stops clandestinely and intervening in the markets wherever they can.
An excellent point was made by a number of analysts who pointed out that this is one of the rare times in recent history our economy is ahead of the markets. This can kill the frothiness. Think of it like a relationship. There’s the excitement of the beginning when anything and everything seems possible. Everyone’s so happy and excited. Once the reality sets in of what the relationship actually is, there is a deflation of emotion, even sadness. But if the relationship is good, we are wiser and regroup, appreciate what we have and find new highs.
Of course, there’s always the possibility in regrouping we see the devil itself. Then all bets are off.