Global stock markets took a heavy beating when US lawmakers passed the US$850 billion rescue package. It is now a situation where investors are no longer concerned about the prices, as they are now more anxious about getting out of the stock market as soon as they can.
There is now evidence of panic-selling owing to the high volume of shares changing hands.

Whenever there is panic-selling, investors who got out earlier would find it hard to resist the temptation of jumping back in. These bargain hunters usually get hunted by the market beast.

At current levels and in such a situation, fundamental analysis no longer plays a part in analyzing the stock market. We can only wait for the panic-sellers to clear out their portfolio while we wait for an “earth-moving” event to take place.

What could this be?

Interest rate cut? The Australians have already cut interest rate by 100 basis points but the stock market continues to fall unabated. Many now expect the Americans to do likewise [Editor’s Note: Fed cut rate after article was written] but the impact of the rate cut could be mixed.

This resembles the 1998 Asian financial crisis where blue chip stocks decline by huge percentage points on an everyday basis, so much so that investors were scared off by the magnitude of the falls. It reached a point when investors were almost numb to the declines until hedge fund LTCM went bankrupt. It was only with the US government’s intervention that the situation was reversed.

What we are facing now is worse than what we experienced a decade ago. Back then, the Americans were not affected by the crisis and, in fact, it was they who came here to attack our stock markets and currencies.

What else can work if the US$850 billion rescue package failed to lift markets? What must be done in order for confidence to be restored? Must Ben Bernanke drop money from the sky in order for the man in the street to feel more relieved?

It is not a joke because cash is what the markets need right now. Most of the banks are now holding onto cash, as they are too scared to lend to each other for fear of bank failures. Central banks all over the world have pumped in so much liquidity into the financial system but all these money have disappeared from the face of the earth.

When the US government announced the rescue package, Warren Buffett, too, played a part by helping to lift the markets. At first I was quite optimistic about it and intended to increase my portfolio of stocks but once stock markets started to slide, I lost the conviction to buy.

I was holding onto some stocks and the value of these stocks kept falling. It was hard to face the fact that share prices are falling and I could only rely on religious faith to keep myself balanced. I thought to myself and realized that I am more fortunate than those who bought into the mini bonds issued by Lehman Brothers.

It was heartbreaking to see these investors struggling to face the fact that their hard-earned money could be gone.

It is hard to predict how far and how deep this crisis would go. For those investors who had bought earlier hoping to catch a rebound, it is perhaps a good idea to let go of some so as to let yourself feel better.