Panic!

Panic! It is now an ideal time to add this item to my stockmarket lexicon, because January 2008 threatens to rank among the worst months for global stockmarkets in four decades. Panic happens when an orderly market retreat turns into a rout of indiscriminate selling, but why? Panic is more likely if the economic cycle is weakening. Typically, strong growth leads to high capacity utilisation and rising inflation, so bond markets fall and interest rates rise, squeezing share valuations. Share prices can only stay high if profits continue growing, but eventually the combination of increasing...