International Herald Tribune – After the mighty uproar in the stock and commodities markets lately, the best part of the story may remain to be told.
It probably will not be as dramatic as the lightning-fast bear markets that struck emerging economy stocks, gold and some other commodities. From May 11 through June 13, the Morgan StanleyCapital International Emerging Markets index dropped 24 percent; the Ishares Comex Gold Trust lost 22 percent; and the Ishares Silver Trust plunged 35 percent.
Each of those three declines fulfilled the simplest rule of thumb for a bear market – a drop of 20 percent or more. Most traditional definitions also stipulate that the losses occur over asustained period. But those definitions were written when many things took longer than they do in the 21st century.
Therein lies the big question: Can modern bear markets like the ones we have just seen get all their dirty work finished in just a few weeks? Can we dispense with the long, dreary wait forconfidence to return that was so characteristic of the aftermaths of bear markets in previous generations?
I know, I know, human minds and human emotions have always followed certain patterns that never vary much. Once burned, twice shy, and all that.
Even so, the prevailing mentality in the markets has changed a lot in recent years, thanks to the growing presence of hedge funds. Unlike many old-school investors and the typical mutual fund,hedge funds play the markets from both sides, betting on both ups and downs. Hedge funds think in shorter terms and pull the trigger much faster.
Hedge funds, and other investors operating in hedge-fund style, certainly seemed to be setting the mood in recent weeks as the markets fell. They fled from speculative positions that could beheld using money borrowed at low interest rates, known in the business as carry trades.
