Global Stockmarket's Wile E. Coyote Moment

As most of you have probably already heard, global stock markets have plummeted in recent days-and recent weeks. Why? Well, it seems global stock markets are finally waking up to the fact that the U.S. economy is in a recession and that this will hit profits of companies operating in America hard. This probably happened already the fourth quarter of last year, and I and a few others, like Jim Rogers, Peter Schiff and Nouriel Roubini, have long pointed this out, but stock investors have long deluded themselves that it isn't true. Now they're finally getting it-and now they're panicking and selling even stocks that are likely to be largely unaffected by this crisis. This creates bargain opportunities, although I wouldn't recommend buying yet. Since the crisis is likely to get even deeper, the general sell off will continue in the medium term -although some new sucker rally may come soon in the short term if, as seems likely, the Fed panics and cuts really big, deluding investors into believing it will solve the problem- , which means these undervalued stocks will get even more undervalued.

Anyway, the fact that the stock market this time reacted to the recession so late really reminds me of the Wile E. Coyote cartoon character. Wile E. Coyote in his futile hunt for the Roadrunner sometimes ran off a cliff and kept running even though there was no ground below him. Then, when being in mid-air, he looked down, and only then did he start to fall. The U.S. stock market valuations have long had no fundamental ground to stand on-but only now do investors realize it and only now is it starting to fall.