We are being told every day by the media that we are in a crisis but what exactly does that mean? Except for the obvious fact that bad news feeds more bad news. But by saying we are in a crisis we are also denying reality by saying that we are worse of than we ought to be. But, who says we ought to be better of? Is it just because we had something that we are meant to have it forever? Was it written in the skies or did some divinity mean for us to always be well of but then something “bad” happened? Something that now has to be fixed so we can get back to how it was just a year ago?
No. We don’t ought to be anything!
A year ago most of us were living in a bubble, a bubble created by a non-regulated financial world and an excess of money. The latter being a product of the former. As time goes and the situation unravels to us bulk-people as well, this is starting to be the accepted truth. Take for instance the Maddoff scandal (or any other world-wide Ponzi scam) which was a result of lack in regulation, too much money and a vicious circle of greed.
What was the reason for this? It’s quite simple – there is too much money in the world. Banks were creating more money by lending it out to complete strangers which as we know resulted in the sub-prime crisis. When there was too much money, people didn’t know what to do with it so they bought iPhones, expensive clothes and big houses. Things they knew they couldn’t afford if they thought about it, but still did so because money was free and seemed to be so for ever and ever. It was a roller coaster ride that wasn’t going to end. Ever.
Then, one sunny day, the banks slapped everyone with a shovel in the head and suddenly everybody was grabbing a shovel and slapping each other and his cousin in the face. Suddenly the world wasn’t so happy anymore and here we are.
The market overreacts. It always does and that is in a way its function. When one grabs a shovel and starts hitting himself in the head – suddenly everybody seems to think this is a good idea, which just shows how everything is driven by sentiment. We are neither now nor were we a year ago at a level “we are supposed to be at”. Everything changes all the time and the market always tries to follow but it never gets there. Like Gretzky, the market always tries to skate to where the puck is going to be, except that here the puck can go in a hundred different dimensions, and not only two.
For a short, funny and educational video on what the subprime crisis is about see on the video below.
Currently it looks like there are going to be more layoffs and most of us are going to have to put on hold buying that iPhone 4G for a while, but just wait and see – there will be a time again when we forget about being wise and get all excited again. And then, you get to spend spend spend 
Just relax and take the world as it comes and don’t dance too fast.
For some great links for real market news see the following ones below:
