Why do we hate corrections? Yes, they are bitter and painful but they also give us a chance for a healthier, stronger and further growth. Don’t they? Therefore we should actually celebrate what’s been happening in the global stock market i.e. a plunge triggered by the US credit crunch fallout over the past few weeks. The risk is now being repriced. Besides, we can’t have a bull market all the time, can we?
Well, it’s certainly easy for me to say that because I’m currently not holding any positions in any capital market instruments now ;-). Some fund managers however, whose funds are exposed to the US subprime mortgage, must be going through hell now. Yet it is still a nicer hell compared to the one that the investors are going through now.
So, it’s more of a show, a reality show, to me. I think the current situation of the global stock market should have won the prize for The Most Interesting Reality Show. So much drama and suspense. I’m willing to lose some sleep for having to stay up late, sometimes until 3 am Jakarta time, to watch CNBC. It’s been very amusing to see how the market players interpret and react to the situation. Analysts, traders, fund managers, investment strategist, academics or even central banks are all trying to figure out what’s been really happening with the market and most importantly what to do next. Sell? Hold? Or buy? They argue, they debate, they scream and they are confused. Central banks are criticized for injecting too much money or too little money or even for intervening/bailing out or not intervening the market. Chaotic!
The problem is nobody seems to know yet how big the exposure is until the dust settles. This adds nervousness to the frenzy and thus sends the volatility over the roof. It’s been a wild ride. Moreover, you cannot really trust the big houses these days. One day they say they have no exposure to the sub prime loan now but tomorrow they may say other things or already suspend the redemption of their funds.
So, buckle up! The show does not end yet.
6 comments:
even tho i work with hedge funds, actually maybe cos i do, i think it's great fun too!
altho i can imagine it's not too much fun for investors as you said... i wonder how long this is gonna go on for? and i wonder does anyone have a proper handle on what's happening.
somehow i can't imagine that american subprimes have made up such a proportion of portfolios that it'll cause the globa economy to tank...
oh yes john, it is certainly not fun for investors for they are the ones who bear the actual losses. i had an investor who lost his mind when his investment in mutual fund drastically dropped by 70% during the 1997-1998 crisis. that was hella money.
imho, subprimes could be just the trigger for risk pricing that the market needs. all this time the market has been awash with cheap money. not to mention the use of margin/leverage.
yes, that would be the question everybody is asking now: how long and how far is this gonna go on? let's hope it's just a correction to the bull not a start of the bear. thou i see lots of opportunities with the distress paper ;-) should the bear be the case.
I agree, good investors should always look beyond the correction. After any turmoils, including this one, the markets usually become stronger and less risky. What people are scared of is being part of the casualties. In the crash this time, everyone, no matter which side you are on, short or long, seems to share the pain..
yes, eventually everyone will lose if this turmoil turns into a recession. but at this moment, people who enjoy this situation albeit temporarily are those who are sitting on cash now ;-)).
the market would become less risky after the turmoil? hm ... i'm not sure about it. the market tends to have a very short memory ...
"imho, subprimes could be just the trigger for risk pricing that the market needs. all this time the market has been awash with cheap money. not to mention the use of margin/leverage."
yeh i agree, i suppose now everyone's looking for the next cdo underlying mkt to implode...
we'll see ... it's all about the credit market now.
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