So – markets are coming off, after five years of almost continuos bullishness. Weird, eh?

Well, it’s mainly been the ’emerging’ markets that have been getting creamed. The big western donkeys, S&P, Eurostoxx and stuff are only off around 5% from their highs. Still, it’s enough to get people worried, get the talking heads speaking of a correction and so on. Do they have a point?

It’s obvious that the market has become expensive, and not much value (see my CAPE post, etc). But the troubles around the world are a slightly different story – in my experience, because of a basic thinness and ultra-fast money flows, they are always the first to suffer and get punished harshly when the liquidity tide starts to recede (and we see who’s been swimming naked, to quote Warren Buffet). So yes, it’s a sign of trouble, but its still quite far on the horizon. I suspect you’ll get a few oversold (and sharp) bounces in a generally flattish trend – hell, you might even get some marginal new highs before the proverbial brown matter hits the fan.

Don’t panic, yet. Use bounces to reduce exposure, if you haven’t already, and don’t add to your positions if you’re already long. It won’t become even a quick buying opportunity unless it comes off near 15% from the highs, I think.

Then again, what do I know? I hadn’t shorted anything yet…