The market is still behaving in a way that begs for some medication. The specific medication is unknown as of this point, but it could be that China’s overt support of the EU and its money is a powerful ingredient. Another ingredient could be the lessening of tension in the Korean peninsula, and still another could be a serious drop in unemployment in the U.S. If someone could put all these ingredients into one pill that the market could swallow, the erratic behavior of the past few weeks just might subside to something more fitting a somewhat “tortured” global economy in recovery.
As I have said many times, the market is simply our collective thinking at work. It reflects our market-oriented fears, hopes, ambitions, and mental health.
The above is a quote from yesterday’s column. In that column, I discussed our market-oriented mental health, and today I feel much better about it. In fact, the volatility I mentioned as a root cause of our instability seems to be abating. As of this moment, the VIX has dropped almost 13%. If this downward trend holds, and I believe it will today, the acute symptoms reflecting our collective disorientation might begin to subside. No, I don’t see complete recovery in the near term, but I do see healing in process.
If the volatility index does continue to drop from its recent highs in the forties, stabilization will occur, but only if we can get at the root problem that has brought us to this point once again – fear. Investors have been fearful about Europe, China, Korea, and the U.S. for a variety of reasons, all legitimate and all serious, but, as I have stated before, curing fear is not impossible. Yes, overcoming the impulses deriving from fear is a difficult task, but just as one of us can do it so can the big-money investors. Then again, their responsibility is much higher than mine, as the money they invest is that of others, while the money I risk is mine and mine only. I understand the caution and prudence associated with this responsibility, and I have no problem with this approach.
No, to cure the fear, we need to attack the subversive and manipulative agent that causes and fosters the fear, and that is the unregulated financial industry in general, and, specifically, the unregulated hedge funds that utilize computer trading (Black Box systems) to increase their wealth to the detriment of the market. As I find out more and more about the computerized trading going on out there, I realize that the agents of fear are those that work to manipulate the market in their favor. These agents feed on greed, so to get at them we must cut their supply of food, and the only way to do that is to regulate and to regulate hard. Eradication of this negative agent is not possible, but as we have seen in the past, we can surely control it to the degree that allows the market to both heal and function in manner consistent with fair play, which would be healthy for all of us.
Trade in the day; invest in your life …
