By Liu-Yue (Louie) Lam, Chief Investment Strategist, Oxstone Capital Management, 8/12/11
For the past few weeks stock markets around the world have shown extreme volatility. It will probably take some time before the markets settle down. So sit tight, and buckle up for more volatility ahead. One of my favorite investment gurus Jim Rogers once said, “I sell euphoria and buy panic.” Fear is opportunity. Conquer it and keep investing for the long term. Have a strategic asset allocation plan and stick with it. Leading economic indicators are not showing recession, just slower growth. This is a self inflicted political crisis. Expect the introduction of QE3 etc, and other monetary policy measures to support the markets. Global coordinated easing especially in the emerging market economies should provide additional stimulus. The current reduction in commodity prices including energy should act as a tax cut. The key question is whether the current extreme volatility and the temporary negative wealth effect of short term market declines enough to significantly impact our economic recovery? I think the U.S. economy is too large a ship to just change course so easily.