With the FTSE 100 slipping below 6,000 at one point on Monday, and only a handful of stocks in positive territory at the time of posting, the market sell-off, correction, carnage, melt-down, call it what you will, looks far from being over.
Within the blogosphere, Greg Newton at Naked Shorts is one of those who seems strangely jubilant. “Oh, and it never matters, until it does. Last week, markets rediscovered risk. This week, they’re in line for a sharp reminder that — as then Federal Reserve Board chairman Alan Greenspan said 18 months ago — ‘history has not dealt kindly with the aftermath of protracted periods of low risk premiums.’ And Goldilocks? Well, she was a burglar, and she’s outtahere as the Three Bears Police Department’s sirens echo through the woods.”
Those sirens have been there in the background for some time, he says. But now: “It’s overdue. It’s healthy. It’s 5 per cent more or less. It’s not the end of the world. But a lot of fingers are badly scorched, as much by correlation — everything went up together, so was it really a surprise that that gold didn’t turn out to be a great hedge? — as the move itself.”
Take note, Eddy Elfenbein at Crossing Wall Street. He is deeply unhappy at the sudden outbreak of describing the market’s blip as being, along with muesli and regular exercise, healthy. He writes: “People often want to make capital markets into something they’re not. They get carried away with sloppy metaphors. For the record, markets are not at all like human beings. Going to the dentist may be very unpleasant, but ultimately good for you. Markets do not work that way. A sell-off is a sell-off. A rally is a rally. There’s no such thing as a good, or “healthy” sell-off, or a bad rally.”
One writer Elfenbein quotes is more specific. Lawrence Kudlow, a former Reagan economic adviser, writes that, “The plunge follows a 20 per cent run-up that began last summer, and some analysts believe it was overdue. Indeed, 3 per cent corrections are normal and healthy.”
Why 3 per cent? And at what point, then does a “healthy” 3 per cent correction, become an unhealthy correction? TickerSense is in on the game though, looking at how far into bull and bear runs a 3 per cent move has historically occurred.
No matter – for Kudlow, the blame for Tuesday’s market drop lies at China’s door, but he has a philosophical takeaway: “My advice to investors is to remain optimistic and stay in stocks for the long term, since economic freedom is the tried and true path to growth and prosperity. Isaiah Berlin wrote many years ago that hedgehogs always win the long-term race against foxes. Message to the investor class: Hold that thought.”
But who wants to be a hedgehog? The species might win out but more than half are off to meet their maker before their first birthday – and they probably don’t have much fun in the meantime.