October 27th, 2008
07:09 AM GMT
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LONDON, England - How long can this go on? We seem to be locked into a terrifying cycle: stocks suffer days of sell-offs, followed by a powerful bounce. But just as we start wondering whether this market slump will follow the same pattern as its ugly predecessors of 1987, 2001 and many others and hit bottom, the same pattern repeats itself.

Traders at the New York Stock Exchange, where share prices have fluctuated strongly during the past few weeks.
Traders at the New York Stock Exchange, where share prices have fluctuated strongly during the past few weeks.

It's three steps back, then one step forward – and over the past few months it's been repeated more times than I care to remember. To make matters worse, there never seems to be that much rhyme or reason to the selling or the buying. One day share markets worry themselves sick about global recession, then the next day all that is outweighed by some random piece of supposedly good news. A few hours later a renewed slide on stocks in another time zone has investors back in panic mode, and we're off to the races again.

Market insiders point to several underlying factors, notably the aching uncertainty about where the credit crunch and the world's leading economies are heading. But they say that what is clearly adding to the volatility is a frenzied scramble by hedge funds to move out of stock markets and also to make money for their investors by whatever means they can dream up. The betting is that they are both creating a lot of the volatility and riding it at the same time.

To add to the craziness, we are seeing some violent swings on currencies, with the Japanese yen and to a lesser extent the dollar (given the relative security of US Treasury bonds) now the safe havens of choice amid the carnage of "global deleveraging".

With previous sell-offs, there seemed to be a clear end to the selling. It may have taken a while to come along, but in the end the bargain-hunters stepped in and there was a gradual return to normality, and then to sustained growth in share values.

So where are we now? When Warren Buffett said a couple of weeks back he thought Wall Street stocks were a buy, he may have been right about their current puny valuations, but not about whether those valuations could get even punier.

Speaking on Business International on Friday, Robert Parker, Deputy Chairman of Credit Suisse Asset Management, was a lot more cautious, predicting the return to a bull market would not come until the middle of 2009.

That would certainly be a few months before the predicted end to the current global slowdown, which most economists I speak to seem to think will only loosen its stranglehold at the far end of 2009.

What do you think? If so illustrious an investor as Warren Buffett thinks we're close to the bottom, should the rest of us pile into stocks in hopes of rather decent gains within a couple of years? Or has even he got it wrong? Watch what Tom Hougaard, chief markets analyst at City Index thinks of your opinions



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