Dow Falls Below 13000

My blog in February 2012 stated that sustainability of Dow at 13000 was questionable.

Indeed, the Dow on 18 May 12 was back in 12,369 level some 3 months later. During the past 3 months, JP Morgan had declared a loss of more than US$2 Billion, an obscene amount given that financial institutions had just came out from fecal pit not long ago. Again these CEOs were paid millions on salary and bonuses. Corporate governance are non-existence words in financial dictionary.

The jittery from Dow had affected the rest of the World's market with Greece and Euro crisis adding fuel to the burning stove.

At the same time, interest rates are at historical lows. As explained in earlier posting, the effect is inflationary across prices of food, commodities, day-to-day purchases etc.. On the property front, the similarly effect is felt in Asia. Everthing is going north except equity prices. Would I call it a paradox?

Lets look at why equity is so susceptible to flutuations:-

(1) Herd mentality - The psychological effect on equity markets.
(2) Ability to short the market - Where profit can be made by betting on a sliding market, causing it to slide further.
(3) People avoiding equities - When there are other alternatives, such as gold, silver, property. Why equity when the return does not seem to be proportional to the risk? The drop to Dow 12,369 level is equivalent to about 5% in just a few months. Traditionally, investor is looking at a return of 5% on equity market in 1 year. This is in consideration of a mild inflation.

In summary, the financial institutions and world government leaders were simply not displaying leadership with respectable conscience. Inflationary pressure reduces purchasing power of the general middle class of hardworking citizens. What a World! ..... Is capitalism good?