Financial panics occur when the "blind capital" of the public floods into unwise speculative investments.
The market is perfectly unwinding from last year's action, with the dogs leaping to the front, and the (2013) winners free falling down into bottomless pits. In many ways, it is remarkable that capital would seek out names called losers just weeks ago, like McDonald's (MCD), IBM (IBM), and Symantec (SYMC), while the hottest names that represent the future of global commerce are not only being kicked to the curb, but are also being stomped into submission. Have Amazon (AMZN), Goggle (GOOG), and Facebook (FB) really become irrelevant overnight?
The answer is absolutely not, but that does not mean the share price of those companies were not ahead of themselves. Still, even when people were buying the high flyers at the top, it hardly qualifies as "blind capital" or unwise speculation. At some point, maybe much sooner than you think, all those high flyers will revisit those lofty perches as the underlying fundamentals bolster their claims to leadership; but the rapid rotation from leaders to laggards must contain some kind of message or story.
James River’s Bankruptcy filing noted three reasons for the action, and events, which lead to the Chapter 11 Cases:
Two reasons above would qualify under creative destruction, but one is a damn shame.
I have had several emails and tweets asking or predicting a worst-case scenario, including the next Great Depression. Even when I allow my imagination to run wild, I cannot see a Great Depression around the corner.
I can see the dangers of record government debt; $4.0 trillion on the Fed balance sheet and of a nation fiddling around with the notion there is something better than free markets and capitalism. Toss in fiscal policies that bankrupted a coal company last week, and it is not hard to imagine disaster.
Nonetheless, it is too soon to talk about another recession or Great Depression, as the economy has willed itself to stay above water driven by natural instincts and driven by the size of the greatest economic engine ever cobbled together. The debate about the stock market however, is more nuanced and open for level-head conversation. Is dumb money flooding the market? Are novices in over their heads? I do not think this is the case.
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