INTELLIGENCE ORI AND ROM BRAFMAN

If today’s stock market were to visit a psychiatrist, the diagnosis would likely be bipolar (manic-depressive) disorder, a condition characterized by extreme mood swings.
The global stock markets soar one day on news of a bailout, only to sink the next day after more bad economic news. Happy market. Sad market. Happy. Sad.
Top policy makers and investors alike are left trying to figure out why the market reacted in a particular way. But this is a futile effort. It’s virtually impossible to determine causality when the market is overreacting so wildly. Even with the benefit of hindsight, it’s difficult to tell how developments affected on the market.
Now, of course we shouldn’t passively sit by and let the market gyrate. But too much effort is being devoted to stabilizing and appeasing the stock markets as opposed to actually curing the ailing global economy. We need to accept that whatever policies or bailouts are announced, the markets will continue to be volatile in the short run. Painful as it may be, we need to let the markets oscillate.
But the market’s wild oscillations are eroding investors’ inherent trust: There’s a growing sense that the market has lost its mind for good, that we’re heading toward a second Great Depression. Is the market undergoing a temporary nervous breakdown, or is it more like a patient who needs to be institutionalized?
We believe the condition is temporary.
Time and again, the markets have proven themselves stable in the long run, and there’s no reason to think this particular storm-albeit more intense than most-is unique. Unemployment figures, though cause for concern, are nowhere near 1930s levels. Policy makers can use the lessons of the Great Depression to guide us. And we have a new president coming in armed with an aggressive economic strategy.
What is worrying is that we focus too heavily on short-term market fluctuations, while we should focus on healing the economy. In truth, we have two patients on our hands-the market and, more important, the economy.
Over the long run, the markets are good reflections on the state of the economy. But this doesn’t hold true in the short run when the markets are experiencing a bipolar episode.
Although the market’s long-term diagnosis is promising, everywhere you look-from TV business show to stockrelated newsletters-financial gurus are painting doomsday scenarios for the future. It’s hard to digest all this news without going into a panic yourself.
The solution is to recognize that while there’s not much we can do about the wild gyrations of the market, there’s a lot we can do to fix the economy. Tax incentives, a well-designed bailout package and sound mortgage relief will not only help the economy heal but also contribute to the stock market’s eventual recovery, returning it to a more stable, non-bipolar state- until the next storm comes along, of course.
The smart investors are the ones who can tolerate oscillations, distinguish between an episode and a fullblown psychiatric condition, and have faith in the market’s sanity over the long-term. Smart policy makers will focus on the economy and make sure the right patient is healthy.