There is hardly ever a dull day on the worlds equity and bond markets. Late last week amid some some gloomy reports on developing country markets and less bullish news about China’s growth rate traders and hedge funds rushed to unload some of their holdings and short sell others. The result -not a surprise- the Dow lost over 300 points in Friday’s trading.However today after a slow start the Dow is currently at 3:23 in the afternoon up 42 points and the panic is subsiding. There is quite possibly going to be slower growth but the overall recovery should continue and if appropriate policy is implemented even strengthen. So long as governments avoid the siren call for austerity.It is this mistaken policy and the widespread erroneous belief that QE will result in serious inflation even in current circumstances that lies behind this nervousness and short term thinking in the markets.
I could be wrong but I don’t believe that markets will be excessively bearish for very long.