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Irrational behaviour in the Market!

In 2008 there were genuine problems with companies, slowing sales and profits, bad mortgages, failing banks, bailout packages and recessions in full swing.

Today we have none of these things!

What we have right now is a crisis of confidence. Investors are worried about everything. They are even worried that they are worried!

One of the problems with the market is that the big fund managers in the US (we derive much of our energy and emotion from the States) are on vacation, and will be until the end of August. Those dramatic swings that have been making you dizzy have been on very light volume.

What are the real problems?

The US economy has slowed.

There are significant issues with the EU and the sovereign debt of the smaller countries. France and Germany will probably agree to prop these economies up but with greater intervention by the EU (actually Germany), in the fiscal policies of those countries propped up. The problems here are completely solvable.

So what sends the market into a nosedive? Imagined problems!

The first is anxiety about the strength of European banks. There is no evidence that there is any chance of
failure here. Last week’s rumour that Societe General was in trouble was nonsense, and so is this latest fear – completely without evidence .

The second imagined problem is that the US will double dip into recession. This won’t happen because –

- The data is definitely not suggesting a recession and most economists don’t think there’s much of a chance

- Fed chairman Ben Benanke has made it very clear that he will do what’s required to avoid recession occurring by obviously kicking off QE3.

What you have been witnessing is one of the most volatile markets you will ever see, and wealth destruction on a grand scale. Investors who are selling now are probably making one of the biggest financial mistakes of their lives and crystallizing losses. Remember, unlike 2008, there is nothing wrong with companies or banks. Expect an upswing after the US Labour Day on September 5, when Wall St fund managers go back to work. They will be hunting for bargains – if there are any still around!