Hell is other investors


Well, the Dow is of by hundreds of points, the Fed is announcing surprise inter-meeting rate cuts, Bank of America reported a 95% fall in its profits, and the outfits in the new spring catalogs have the shape and coloring of badly-decorated Easter eggs. All in all, not a good morning.

What to make of it all? I decline to comment on the fashion trends, because a lady doesn't use those words in print. As for the rest of it, I pass on the sound advice of the Hitchhikers Guide to the Galaxy: Don't Panic. Though you may feel, in the immortal words of Tom Lehrer, a bit like a Christian Scientist with appendicitis, keep your hands off the 401(k). Don't call your broker. Put the children's toys back in their room--no need to sell them on EBay quite yet. And you can cancel that order for 1,000 Red Delicious apples and a little wheeled cart.

This is very bad news for people at the large investment banking houses, who didn't get much in the way of bonuses last year, and can probably expect the same disappointment again come next December 31st. Nor would I want to be an upper-level executive at Bank of America right about now. Anyone who invested money in the stock markets looking for a quick 5% return to make rent this month is in trouble. But everyone else should take a deep breath, have a cup of soothing herbal tea, and repeat to themselves "I am invested in stocks for the long term".

Stocks are at best a middling-good indicator of what is happening in the economy. In my humble opinion, for a welter of reasons that aren't entirely clear, they've been overvalued since the late 1990s. Though they've adjusted somewhat since George Bush took office, the adjustment hasn't gone far enough, which meant that a market correction was likely at the first sign of trouble in the economy.

We do have some trouble. But it isn't yet terrible trouble. The banks saw their profits fall, but despite the mortgage awfulness, they're still making a profit. Unemployment rates are still rather low, and the Fed is clearly signaling an aggressive stance on falling output. Absent a liquidity crisis, which we are very unlikely to have, there's no particular reason to fear more than a mild recession. Obviously, a mild recession is not anyone's idea of fun--I myself was unemployed during the last one, and during that period I came perilously close to the edge of despair's bottomless maw. Nonetheless, seven years later, I am still here.

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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