We are in the middle of a long-anticipated correction in global stocks. The proximate cause is the surprise hike in interest rates by the Bank of Japan last Wednesday. The bank raised rates to support the yen. The result has been to unwind a popular strategy among institutional investors. The shocks are being felt around the world.
There is no doubt that many investors have become inordinately exuberant and have crowded into technology stocks, particularly AI. This has made them vulnerable to bad news. Investors, being who they are, have gone from believing that AI will make them all rich to fear that we are headed to the next Great Recession. The prospect of widening warfare in the Middle East magnifies this sudden fear.
I do not believe that either the American or global economies are headed for recession. In fact, the economies of England and Europe look to be pretty good right now. Investors who piled into overpriced stocks, particularly those who borrowed money or use options, are getting a shellacking. The old expression in my business is that “bulls make money, and bears make money, but pigs get slaughtered.” So it goes.
I shall keep everybody informed.