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Now that the stock market is going up and down by three or four hundred points a day, it’s time to introduce our financial adviser, Chicken Little. That’s Mr. Little over there on the left, watching the sky fall. Chicken Little has a good memory for market behavior over the past hundred years, has studied the Great Depression and is thoroughly familiar with the writings of economists such as John Maynard Keynes, Friedrich Hayek, Martin Feldstein, and Paul Krugman.
About the current market situation, our adviser tells us “The market is highly volatile,” and “Traders are worried about the Euro-zone economies, especially the status of European banks, and the debts of some European nations, such as Greece, Ireland, Spain, Italy and now, possibly, France. Also, the downgrading of the United States’ credit from AAA to AA+ doesn’t inspire confidence.”
Mr Little tries to agree with politicians who say that we are suffering from a lack of confidence and nothing more. As he phrased it, “The market is down because people won’t buy stocks when they have no confidence that business will improve. After all, 14,000,000 people don’t have jobs to earn money and buy things. So it’s really just a lack of confidence, nothing more.”
According to Chicken Little, “The market hates uncertainty and currently things are very uncertain, and that’s why the market is so hateful. If you keep in mind that past performance is no indication of future results, you’ll do fine.”