Stocks off $7 Trillion...Now What? Peter S Cohan

Market strategist and venture capitalist Peter S. Cohan discusses possible equity market scenarios.

The message to take from all this is "don't panic!"

(Forbes) Stocks have lost 15% of their value since July 21st’s near-term Dow high of 12,724 — amounting to a loss of around $7.8 trillion in the last 10 days. And they look like they’ll fall further. What you should do depends on a few factors:

• The plunge’s cause
• Your forecast of stocks’ direction
• Your financial condition and cash needs

The Plunge’s Cause

The first thing to consider is why stocks have been plunging. After all, if you know the cause, you might be able to get a handle on whether stocks will keep falling or turn around. Regrettably for the average investor, there is no credible way to explain what caused stocks to lose 15% of their value.

That is not to say that people are not offering explanations, it’s just that there is no evidence to back up the claim that there is a cause and effect relationship between those drops and the supposed causes. Here are a few examples:

• S&P downgrade. The idea here is that S&P’s downgrade of U.S. debt caused stocks to crash. Of course, stocks have been plunging since July 21st and that downgrade happened on August 6th so that could not be right. On the other hand, it would not shock me if rumors of an imminent downgrade hit the hedge funds last month and many investors sold their stocks in anticipation of general investor panic. But so far, there is no proof that this is what happened. Meanwhile, S&P’s downgrade has had exactly the opposite affect it intended — investors are pouring money into 10-year treasuries, dropping the interest rate they charge us by 27% in the last month.  Read more at Forbes.com