read this : from MF
Subject: mutual fund investor re-acts
Author: prichards Date: 12/26/97 11:33:10 PM (ET)
as my first post here highlighted, "the media is the message" and it's affect on the markets before Oct 97 and now during its decline.
phase 1: denial late Oct/97
the media denied any asian effect in the US, investors bought on the dips.
phase 2: asian alarm rings louder
the extent of the financial damage starts to unravel,
the white house & Fed become alarmed by calls from
Japanese & European banks. the media reports the asian mkt swings. analysts continue the hype of santa claus /january effect arrival.
phase 3: earning warnings
first a dribble from techs, which eventual spread to other sectors, causing wild mkt swings and the media reports all of it.
phase 4: equity fund withdrawals
the anecdotal evidence of investor alarm started this last week as his fund units show large declines. fear hits investors, as they withdraw $9.5 B from equities this past week.
what's important now is to understand the asian
crisis affect on the market becomes secondary to a cycle of ever mounting fund withdrawals as more warnings are issued. This is also spurred by media editorials to withdraw as advised in the business editorial in Saturday's Toronto Star.
phase 5: continued selling
The markets decline,(how fast or how much is anyones guess) but the investor is now ripe, reversing his course fleeing the mkt. he's simply re-acting to the media with a constant bombardment of lower corp earnings hitting the tape.
phase 6: fund investors lose control
even with the immediate threat of Korean default averted by banks extending or re negotiating the loans
Japan's economy continues to decline and becomes pivotal.
US companies can not fire up earnings as the asian resolution develops into a protracted crisis of confidence, globally.
fund investors who were sheltered until this point by renewed media reports of calming by bull stalwarts, realize they have lost control of their investments, as funds start to liquidate & dissolve.
phase 7: 10-20 years of flat market performance.
boomers have realized the highly paid fund managers were too young & inexperienced, mistaking bravado for confidence.
after all it wasn't their retirement savings at risk,
not even their 6 figure salaries but simply the size of their bonus.
Investors shun the equity markets in order to preserve what's left of the retirement savings and return to 'safe' investments.
the media was the message, not the new paradigm |
