Here’s the gist:
“MY point is this: I don’t know where the bottom is on subprime. I don’t know how bad the problems are at Bear. Yet I do know that the market reactions are wildly out of proportion to the real problems that have been revealed. Maybe there is some giant thing hiding in the closet that might rationalize the market’s fears. But if it’s hidden, how can the market be reacting to it in the first place?”
More will be revealed, as the saying goes. But recently, investors have been selling out of all relation to what we know. Reassurances in word and deed from Ben Bernanke, chairman of the Federal Reserve, helped calm the markets on Friday. But recent events are a disturbing commentary on the power of fear.
As I said here, fear is dangerous, infectious, and can sway entire markets. Because you say its true makes it true even though it has not happened.
This economy is extremely strong. Profits are superb. The world economy is exploding with growth. To be sure, terrible problems lurk in the future: a slow-motion dollar crisis, huge Medicare deficits and energy shortages. But for now, the sell-off seems extreme, not to say nutty.
Some smart, brave people will make a fortune buying in these days, and then we’ll all wonder what the scare was about.
(As posted in the New York Times. We love you Ben Stein. Thank you for being a voice of reason and not chaos and fear.)