Not that there is any similarity between market declines and earthquakes per se, but the thought did occur to me recently that the vicious market decline of late may only be a tremor. What if the big one was lurking just around the corner? Just like earthquakes, the question concerning an impending market correction, or worse, is not a question of “if,” but “when.” The difficultly lies in predicting when and how severe.
In any event, when last Monday rolled around and the market bounced back sharply, I began to question my bearish assessment. To think I could possibly foretell the direction of the market….well….what was I thinking anyway? For years I’ve held the belief that no one can predict what the markets will do–you know, the Efficient Market Hypothesis and all that?
Today, I still hold this view, but, with the serious debt contagion in Europe, and the rapidly escalating fiscal irresponsibility here at home, I am convinced that a serious market decline is not only plausible, but highly probable. Besides, the market has already has risen significantly from its March 2009 bottom so a correction would not be that abnormal. Then, when the market took a nose dive at the end of last week, I thought perhaps I’m not that far off base. You see, it wasn’t just the decline in the stock market that worried me, but the aggressiveness with which it fell. Moreover, this intraday decline was the worst ever recorded.
If it’s true that the European socialistic experiment is failing and that there really is a upper limit on the size of government which can be supported by its citizens, then perhaps, just perhaps, history is about to write a new and ominous chapter that will be forever etched in our memories.