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Quick Thought Of The Week: Meltdown

Market commentators have described yesterday’s global markets as a “meltdown”.

Bless their cotton socks!

They haven’t really had much to sink their teeth into for a while….

…. So, a near 500-points drop in the Dow must feel like a calamity. Or in their case, an opportunity to climb on a soapbox.

But let’s not underestimate the severity of what has happened.

It all started in Italy when investors took fright at the political struggle between the Eurosceptic populists and the pro-European established politicians.

It was when the President of Italy stepped in to reject the populist choice for finance minister that things started to unravel. Political risk suddenly came to the fore.

Italian 2-year bonds jumped as high as 2.8%. That might not seem especially high. But just a month ago, Italy was borrowing money for two years at minus 0.17%.

Yup – that’s right. Investors were paying Italy to borrow money. How crazy is that?

But now contagion has set in.

Investors are running their slide rules over other bonds and jumping into safe-haven assets.

The US dollar has been the main beneficiary. That could have severe repercussions for other currencies. What’s more, some of our neighbours in South East Asia could have a hairy few days, as they try to defend their currencies.

It could also have consequences for their stock markets. A panicked market does not discriminate.

But here’s the thing. We’ve been here before. It’s nothing new.

Markets could sell off before bargain hunters step in to pick up cheap stocks. But remember this….

…. It doesn’t take long for bargain hunters to find the bargains in the stock market anymore. And by the time they’re finished buying, the stocks aren’t bargains anymore.

As for me, my $100,000 is ready to be deployed into my Personal Income Portfolio, just as soon as the last of my 15 stocks have been unveiled. It can’t come soon enough.

Quick Though Of The Week is a weekly feature by David Kuo for readers of Stock Advisor Singapore and Stock Advisor Gold.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.