In the investing biz it's called 'capitulation,' when people simply give up. Investors throw up their hands, sell what they've got, and put their cash under a mattress. We may be at that point now.The crisis of confidence wracking global financial markets has become so deep and profound, that some observers are questioning the long-term viability of pure capitalism. Even pro-market forces like French President Nicolas Sarkozy have mused that laissez-faire capitalism, as a concept, is essentially dead.
What a shift from recent times, even just last year. The author Nassim Taleb (The Black Swan) has opined that the stock market itself is a kind of mild Ponzi scheme, in that if people lose faith and start pulling their money out, it all falls apart like a house of cards. That's the historical moment we're in, when the Jakarta Index, the Dow Jones Industrial Average, and every other benchmark out there is being beseiged by an utter lack of confidence.
For good reason, since many American banks are now effectively insolvent, owing more than they're worth. But given that equities are priced for Armageddon, for those with a cash pile and a long time horizon, it could be a time when fortunes are made.
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6 comments:
I have read the same stuff with mild amusement. Basically, your average investor is pretty dumb and has a really REALLY short memory. Stocks climb and fall. That's the nature of the business. It's being doing this for a century. Sarkozy's comments about laissez faire capitalism are more interesting. I think he's right, but for different reasons. Capitalism is f-cked up. We need less consummerism, less greed and more socialism in society.
Something about this time around seems a little more apocalyptic. When Ayn Raynd disciple Alan Greenspan is talking about nationalizing the banks, you know something has gone horribly awry ...
Maybe this is a scarier concept in the US than outside. In Australia and NZ, many banks started off as state-owned. I honestly don't think this is any worse than, say, the recession we saw in the 1970s. The good news is that oil is cheap! :)
Yes, in terms of unemployment and inflation, even the recession of the early 80s was much worse. But the feeling on the ground here is of a failed world view, which unsettles people ... if what they were told for so many years was all wrong, then what?
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