The more than $30 billion plunge in the value of Australian equities on Monday will make a dent in all our investments and super funds and result in an understandable degree of panic.
But it feels almost surreal that in a speech to South Shore Chamber of Commerce in Quincy, MA, Eric Rosengren, president and chief executive officer of the Federal Reserve Bank of Boston, has apparently sparked the mother of all international stockmarket sell-offs and brought bear investors out of hibernation.
![There are plenty of experts blaming Monday's fall on computer generated selling.](/web/20160913223130im_/http://www.smh.com.au/content/dam/images/g/r/e/n/4/m/image.related.articleLeadwide.620x349.grei41.png/1473670436197.jpg)
The trigger is not the collapse of a major business or bank, nor big event like Brexit or a commercial or residential property "moment".
It was just one person suggesting what others with an equivalent influence have done before – that US interest rates should be raised again in order that this economy doesn't become overheated.
![Bear moment: Eric Rosengren, president and chief executive officer of the Federal Reserve Bank of Boston.](/web/20160913223130im_/http://www.smh.com.au/content/dam/images/g/r/e/i/u/l/image.related.articleLeadwide.620x349.grei41.png/1473666662838.jpg)
He wasn't sounding particularly alarmist or even strident.
What that suggests is that either it is a gross overreaction, or that the market has been looking for a reason to implode and Rosengren provided the cue. Or perhaps this signals the end of the government stimulus we have become addicted to.
The first of the three is most likely. But the others have played a part.
Europe, Japan and China in particular have been priming their pumps by pouring into their economies now for years. It has met with limited success.
The US has joined the party by keeping interest rates relatively low – all have been a means to stimulate their economies.
If the cheap money game is over and the currency war is about to come to an end, then the sell-off in equities over the past few days is understandable. Cheap money has definitely been a prop.
(In some respects it is a positive for Australia as the spike in the US dollar has taken the pressure out off our own currency – which has fallen over the past couple of days.)
But it is too early to call a rout in equity markets. While there are overvalued stocks and markets, we are not in bubble territory. Stock market valuations may be a bit stretched but the massive sell-off over the past few days looks more psychological than technical.
Not only that, but there are plenty of experts blaming Monday's fall on computer generated selling.
The bigger question investors need to grapple with is whether we have entered a new era of volatility. The answer is probably yes.
The damage is being most heavily felt by interest-rate-sensitive stocks which is not surprising in a world where rates are more likely to go up rather than down.
We have already seen infrastructure companies get hit on Monday. And resources have also received a pounding, thanks to suggestions that the end of the commodities rally is over.
BBY in desperate straits
Over the past ten days we have been treated to a glimpse into the inner workings of a gallery of failed businesses and their bizarre practices as corporate post mortems are conducted by lawyers questioning those involved in the high profile operations of electronics retailer Dick Smith, broking firm BBY and Clive Palmer's Queensland Nickel.
Clive Palmer's use of a business alias Terry Smith and the contents of his "little green book" are being examined in Brisbane amid the circus-like atmosphere, thanks to claims that Palmer's wife was assaulted on her way to the examinations by media and counter allegations that he shoved a television journalist.
Meanwhile in Sydney, the start of the highly anticipated BBY examinations has painted a picture of a company that was in desperate straits for quite a while before it was placed into administration – one that payroll tax obligations were not being met, whose superannuation was not being paid and whose business activity statements were not being lodged to the tax office and whose chairman Glenn Rosewall thought he was being taken advantage of.
Last week examinations of Dick Smith directors and management delved into the company's strategy of its addiction to supplier rebates and how this led to excess inventory – for example near 12 years worth of AA batteries – all of which was suggested to be part of profit padding.
At the BBY examinations the financial controller admitted that while she was aware financial liabilities were not been addressed and pointed these issues out to the chief executive, she appeared content with his explanation that he would deal with it.
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