Malaysian Downpour

Anyone who follows Formula One racing did not enjoy last weekend’s race when it was cut short due to torrential rains. What happened in that race is very similar to what is happening now or in any bubble situation in general. Everybody knows that in Malaysia, the weather changes quickly and one always should expect rain after a sunny morning or vice-versa. So since it was sunny, everybody expected rain. But as dark clouds moved in, rain did not come. Then there was lightning and thunder and still rain did not come. Ferrari took the gamble and got the wet tires on, but still no rain. Until suddenly, torrential rain came flooding the entire circuit with typhoonesque amounts of water. Needless to say the race had to be cancelled.


That is usually the case when things takes longer that expected to happen. In an economic bubble, the adjustment is a burst. In an extreme downturn, the same thing will happen and we will experience a quick comeback. The DOW is close to 8,000 points proving again how volatile the market is and that “recovery” or what I prefer to call “snap back to reality” might be coming faster than we expect. If you believe that the market is a leading indicator to the health of the overall economy, then we should be expecting an early return to normalcy, which is a DOW between 9,000 and 12,000.