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The stock mkt is falling right now because we are seeing a deleveraging in the financial markets.
The world carry trade has come to an end. Everybody (and this is not me and you but the big pension funds) was borrowing money in Yen (close to zero financing) and investing them in riskier assets in other economies (real estate and stock mkt in US, UK, Europe etc).
It all started with the real estate bubble bursting in California. This has created some problem for the sub-prime sector. Subprime are those mortgage pools made by loans to sub-prime creditors. They carry higher returns but higher risks.
A lot of people were invested in them... it looks like more than what the market could take.
As houses went down and we had the 1st defaults the mkt collapsed.
It looks like stocks got caught in this de-leveraging action.
But stocks were not overvalued and it should be temporary.
Hold on to your stocks and don't sell.
The FED has just announced they cut their discount rate (mind u not their targed rate) by 50bp.
This should give reliefe to the mkt and stop the flight to quality we have seen in the last 4-5 days.
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