Forex Signals

Wednesday was a bad day for global markets. Or was it?

Although it felt terrible to see stocks down so much in one day, the reality is that they fell back only to where they were about 10 days ago, and the market didn’t seem so bad then. In fact, it felt pretty good at that point, with stocks more than 6% off their bottom in early July.

There’s debate over what triggered the selloff, as there always is when the market makes a big move. A lot of people blame the Federal Reserve for bad-mouthing the economy in the statement following Tuesday’s Federal Open Market Committee meeting. That makes no sense to me. The Fed just said what everyone can plainly see: The economy isn’t growing as fast as it was earlier in the year. If that’s true, then it’s good for the Fed to say it because that means the deceleration will guide its decisions.

I think the selloff was more about Europe. Before U.S. markets opened Wednesday, a lot of bad news came out of the Continent, which reignited fears of possible defaults in Greece and other poorer nations. That’s ironic because in the otherwise gloomy FOMC statement, the Fed removed a sentence from the previous meeting’s statement on concern over European risks to credit markets.

On Wednesday, Greece reported a horrible gross domestic product number, down almost 6% in the second quarter on an annualized basis. At almost the same moment, the new parliament of Slovakia voted not to participate in the European Union’s rescue fund for Greece. It’s not that little Slovakia makes such a difference — it’s that this was the first sign of disunity within Europe’s resolve to step up to the plate and help Greece and, implicitly, any other nation that may need it.

So take your choice of explanation. Either way, the selloff was a case of “here we go again.” Another credit panic. Another round of paranoia about economic growth.

I don’t mean to dismiss these things lightly, but emotions get in the way here. They keep investors from making profitable decisions.

First, let’s talk about the economy. Obviously, we’re not experiencing a lot of growth. This isn’t what we’re used to in America, but that doesn’t necessarily mean we’re in a recession, or about to enter one — the second round of a so-called “double dip.”

A lot of people seem to think that if the economy is shooting higher, it has a natural tendency to fall and that the absence of strong growth itself implies the inevitability of outright contraction. I don’t think that’s right at all. The natural tendency of the economy is to grow, not shrink. People want to work. They want to make money. They want to be innovative. They want to take care of their families. All these common normal motivations are what make the economy tend to naturally grow, unless something intervenes to hold it back.

In 2008, a lot of stuff intervened. A global banking crisis and oil prices near $150 a barrel were a double death-blow, and a deep recession naturally followed. Now, we’re picking up the pieces after that scary experience, and the fear we still feel is holding things back. But does that mean another recession? I don’t see why it should.