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How Now Thou Dow?

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Tanked. Plummeted. Plunged. Lunged. Nose-dived. Swooped. Dropped like a rock. Took it on the chin. It doesn’t make much difference how you describe it, Wall Street got clobbered today as the Dow Jones Industrial Average dropped over 317.00 points to 16,563.30, its worst single-day point loss since 03 February and its worst percentage loss (1.87%) since 10 April. The NASDAQ also suffered its worst percentage loss (2.09%) since 10 April, an indication that the damage was, and may continue to be, more widespread.

The beating was not entirely unexpected. The FTSE 100 did not fare well ahead of the U.S. markets, falling by a lesser 0.64%. For all practical purposes the setback on the Dow erased all of the growth in the index to date in 2014. The Dow closed at 16,441.35 on 02 January. The question now becomes, “How will the world markets follow on Friday?” With confidence on Wall Street having spiraled, how will that affect world-wide confidence?

It was expected that Argentina would go into default with the banks today, and the expectation was on target. The world economy has become so entwined that the effects of a default by any single country now affect far more than their own geo-economic region, often adversely affecting investments globally. While people become giddy as markets approach and surpass previous record highs, the higher the markets move, the more their giddiness is motivated by fear of what will happen when it all comes crashing down.

Argentina is, after all, only a small piece of a very complex puzzle that includes the twin companions of instability and uncertainty in Iran, Iraq, Syria, Gaza and the Ukraine, to mention just a few. Perhaps the just-announced (literally minutes ago) 72-hour cease-fire in Gaza will hold and give investors some feeling of relief. The ceasefire is set for Friday morning at 6:00 am GMT. On the other hand, if this cease-fire proves to be as fragile as the previous attempts, things could continue to go south in the world markets very quickly.

For the U.S. markets, at least, the drop in the indices could not come at a worse time. August is historically the worst month for stocks. Whether today is an early start or whether it is an omen of worse things to come, is difficult to say. So far, no one seems to be talking in terms of panic, but a continuing decline could lead to that end. The more that the world seems to be coming apart at the seams, the greater the odds that the stock market will also.

I thought that analyst Jeff Macke made a sage comment when he said, “If you’re too nervous to sleep tonight, you’re too long on stocks [and] you’re already nervous. If not ride it out. This is the way markets are supposed to behave.”

So, in summary, the situation is not unlike any other news. It is what it is. We can roll back our clocks, but we can’t roll back time. What has happened has happened. We can’t undo it. What happens next, however, depends upon the choices we make, whether we are a head of government or just the head of the house, we are all subject to the results of the choices we make in response to the situations we face. If we are going to hope for a better tomorrow, then we had better make the choices that will birth a better tomorrow.

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