February 24th, 2009
02:26 PM GMT
The last few days have been turbulent on the market. Not surprisingly, ordinary investors are wondering what on earth is going on.
How can it be, after so much time and money has been spent on the economies of the world, that the market still won't show any signs of recovery?
The answer is because the crisis has moved into another phase. We have gone from a sub-prime collapse in the U.S. housing market, through to a general banking crises based on highly exotic financial instruments - and now into a deep industrial recession in the world's major economies. And it is this part that is now causing markets to fall.
On average, there was a 33 percent fall in Q4 earnings for the 394 companies in the S&P that reported since mid-January according to Bloomberg.com.
So it is clear that the market believes many stocks to be overpriced, based on the companies' existing and future earnings. With downgrades in economic growth for economies like the U.S., Germany and the UK, it's a wonder investors haven't sold even harder. Perhaps they now are catching up
For investors, these are simply horrible days. What to do? Sell into a falling market? Take a risk and buy cheap (I assure you this isn't a case of "Buy on the dips... you may be buying at the top of the next down section of the rollercoaster).
In short - no-one knows. And that's the problem.
Sorry. If you had hoped I would tell you whether to buy or sell, then you are fuming right now. "Not much good Quest," I hear you say.
So tell me then, what should we do?
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