What does the market know?

MY buddy Sandy was an airline pilot. When asked to describe his job, he always answers: "Hours of boredom punctuated by moments of terror." The same can be true for investment managers, for whom the last few weeks have been an example of the latter. We've seen bad news and prices cascading downward. Investors who thought stocks were priced right 20 per cent ago and oil US$70 ago now wonder if they aren't risky at their new reduced prices.

In Jan 14's memo, "On the Couch", I mentioned the two questions I'd been getting most often: "What are the implications for the US and the rest of the world of China's weakness, and are we moving towards a new crisis of the magnitude of what we saw in 2008?"

Bloomberg invited me on the air last Friday morning to discuss the memo, and the anchors mostly asked one version or another of a third question: "Does the market's decline worry you?" That prompted this memo in response.