"For the last few weeks,
we’ve seen a phenomenon on Wall Street. When stocks go down, traders sell
everything. When they come back up, they buy it all, and in almost every sector
and industry. This is an unhealthy trend. … Traders all agree that another
market tumble is on its way. This is no time for the faint of heart."
What's a poor little vole to do? They’re already being indirectly
blamed for the next crash. The allusion to lemmings refers to a legend of mass
suicide, although this is a story with no basis in reality. What is true, however,
is that these animals follow a powerful herd instinct, often perishing amid the
Arctic wastes while foraging for food.
The stock market is experiencing real peer pressure right now. For
the last few weeks, we’ve seen a phenomenon on Wall Street in which investors all
run in the same direction - and trade in unison as well. When stocks go down,
they sell everything. When they come back up, they buy it all, and in almost
every sector and industry. This is an unhealthy trend. There hasn’t been such a
mass effect since shortly before the great crash of 1987 [aka/Black Monday].
It’s no wonder that so many small investors are losing enthusiasm for
the gamble of stocks, for market observers are starting to notice an underlying
trend: Ever since the latest “Flash Crash” of May 6th, when the Dow Jones Index
declined by over a thousand points in minutes, the "small investor" no
longer trusts the goings-on at stock markets. So what we're seeing now is a
marked decline in stock purchases accompanied by a strong uptick of investments
in bonds, gold and real estate.
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WORLDMEETS.US
Historically, even among small investors, an appetite for stocks
is eventually rekindled after a major crisis. But it may be quite some time
before the stock exchange restores its image and wins back the trust it has
lost. In a recent interview, New York Stock Exchange CEO Duncan Niederauer
said that right now, the market may be more of a place for traders - thus
gamblers. Market swings over recent weeks have proven him right. During the
last two weeks of June, the Dow Jones dropped around 7.3 percent. This was
followed by a seven-day winning streak, the best performance in a year. And traders
all agree that another market tumble is on its way. This is no time for the
faint of heart.
*Jens Korte writes as the Wall Street Correspondent for the FTD.
