Irrational Fear

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A few years back, Alan Greenspan became even more famous for his quote about the economy.  He asked:

how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?

The stock market promptly took a nose dive.

Chairman Greenspan’s quote came to mind this morning but in reverse.  I think we’re suffering from a ton of irrational fear.  Everyone to whom I speak about what’s going on in the stock market and the economy as a whole is confused as well.  These are not people that get their news, as do you and I, from the papers or Internet or TV.  Nope.  These folks are hard-wired into the financial community and they’re scratching their heads.

Most of them say there is really no reason for much of what’s going on.  Yes, there is a systematic problem with the credit markets, and that will affect a number of companies in some key industries.  But not every company in every industry.  The effect this seems to be having on stock markets worldwide baffles them.  They are all waiting for what they think is the bottom (and we’re about where they said they thought it was) to snatch-up a bunch of oversold stocks.  Their position is that the whole class is being punished because a few kids acted up.

Do not mishear me – I’m not Senator McCain and our economy is not “fundamentally sound.”  But this is a cold, not the plague.  Irrational fear is the killer.  You want irrational?  Think leprechauns or clowns or public speaking.  We can’t make decisions based on fear and we can’t let our fears become self-fulfilling prophecies.