Last week's sell off in the markets resulted in long faces among some investors and talk of a either a "crash", a "correction"or an "opportunity to buy the dips"among the media.
My take: the sell off is nothing to get excited about and not something that justifies much in the way of comment. Last week's sell off is nothing more than normal market volatility and evidence that capital markets are working in the usual manner.
A more interesting question is whether we are seeing the beginnings of either an economic slow down or a genuine tightening in the credit markets. Problems with sub-prime lending and the US housing market notwithstanding, I see no evidence of either at this point. That said, I am generally inclined to ignore predictions of economic doom given that the majority of such predictions are simply wrong. Here are some examples:
1. 1987 share market crash: while it lead to a deep recession in some economies (Australia, New Zealand) there was no world wide recession and most markets recovered fairly quickly. The endless comparisons to the 1929 crash and resulting depression were all well off the mark;
2. 1997 Asian crisis: it caused a lot of economic misery in Asia ( Thailand, Indonesia, Hong Kong etc) but the rest of the world was largely unaffected;
3. Y2K: this was a complete non-event (unless you were one of those who had the misfortune to spend the new millennium sitting in a crisis management office);
4. 2000 tech wreck: largely an isolated event that was bad news for investors in the tech heavy NASDAQ index and people who worked for a small number of companies that failed for one reason or another (bad business models, accounting fraud) but a non-event for the rest of the world;
5. 2002/3: SARS/Avian flu: the world wide pandemic never emerged. Only Hong Kong was effected to any noticable extent. Within a year of the SARS epidemic, Hong Kong's economy, share market and property market had all recovered strongly.
There are plenty of other examples I can point to. Certainly there will be economic ups and downs. Some will be global events while others will be much more localised. My point is that the only doom sayers who usually manage to predict such events correctly are those who predict doom and gloom on a regular basis (and who history has shown to be usually wrong).
The most irritating thing about all these events is that I have a poor record of taking advanatge of the investment opportunities that they create.