Liquidy Scare in Equity Markets

I always find it interesting when there is an event that sends the equity markets for a correction. The Chinese market collapse yesterday showed the rest of the world that even in something ’stable’ like the financial markets, events happen that can move it fast. Yesterday, the Dow Industrial and the TSX were down 500 points at one point! To me, that is a move I almost see every single day in the commodity markets.

People always tell me that the stock market moves quickly and then can’t understand why I completely disagree. In my world, slow growth or declines aren’t in my vocabulary. Volatility is brought up every single day. Nothing is taken for granted. Dad has a friend that told him this about commodity markets a few years back:

“I have experienced every single emotion in the commodity markets except boredom”

Even the big wigs are getting that volatility is something that comes with mass investment:

Stock market declines on Tuesday will have lasting effect !“ HSBC

The investing world learned an important lesson on Tuesday: Financial liquidity has a somewhat unpredictable sibling known as market liquidity, Stewart Hall, market strategist at HSBC Securities Canada wrote in a commentary. On Wednesday, Chinese equity markets recovered some of the huge losses they saw the previous day and the rest of the world also continues to play catch-up. Markets have the much sought after volatility they were looking for, what do they now do with it?! Mr. Hall asked. He thinks the widespread declines seen on Tuesday will provide the dose of fear some investors needed. And while Mr. Hall thinks much of the declines appear slightly over done, he feels these events will indeed have a long-term impact.

I guess the equity markets are coming around to the hedge funds and massive investment volatility. Not all is lost. Yesterday’s move and the income trust annoucement might make me a believer of equity markets having action! Until I am convinced, I will do with the crazy life I know…..commodities!