CRASH OF THE MARKETS - CAN IT BE BLAMED ON DAVOS CONSPIRACY THEORY?

By Ruma Dubey

The markets today have crashed. The reason? FII’ selling in emerging markets is the topmost reason and that is followed by various others – slower growth in China, gloomier outlook for corporate USA and then they get country specific – political instability in Turkey, economic mismanagement in Argentina, political unrest in Thailand, upcoming elections in India.  Currencies is all these countries have also toppled.

As one can see there are a bevy of reasons but no solid reasoning as such. The sell off by FIIs is not a new phenomena; right since the Fed announced QE tapering; so all of a sudden this reasoning?

So many a times, when logic does not make sense, people resort to conspiracy theories. These are usually floated by people who have immense intellectual vanity and drunk on that, they feel they have the ability to think on a much higher plane than the ignorant masses around rhem. If one finds their theories unpalatable, they merely brushes it off, saying that others simply do not have the intelligence to wrap their mind around such thinking. And if you poke holes in this theory, well, they see conspiracy in that too – justifying how well the conspirators have planned so as to put investigators off the track!

There have been so many such conspiracy theories abound, most of them around major world occurrences. Some of the most famous ones – the landing on the moon was faked, the 9/11 cover-up, the assassination of John F.Kennedy, the CIA created AIDS in a lab to bring down world popualtion, the UFOs crashing in Roswell in New Mexico and then there are many surrounding deaths of famous personalities including Lady Diana, our very own Subhash Chandra Bose, Beatles Paul McCartney and even the death of Adolf Hitler.

What is the connection between conspiracy theory and today’s market crash? Well, there are some who believe that the markets have crashed because at Davos, when all these head honchos of the world met, they ‘conspired’ to sell and the carnage we are seeing today is a consequence of that conspiracy. Why conspire to sell? To cool down valuations in emerging markets to allow them to first book profits now and then re-enter when prices cool off. See, how the theory actually makes sense?

But then, this relationship between Davos and conspiracy theory has been continuing for ages.  These conspiracy-theorists see Davos as part of a sinister plan by a world elite to rule the world. Ditto for all such meetings – the G8 Summit and also the Trilateral Commission;  this is a grouping of the elite from America, Europe and Japan, holding their annual meeting in Washington DC in April. 

Really, there is no such thing conspired at Davos. It is just a reality check after the mad run-up of past few days. Simply put, if the market has risen sharply, it will also fall sharply. In India, the earnings have not been very good and nothing really major on the horizon till election is over.

To lay the blame for the stress in emerging markets entirely on QE tapering is actually a convenient excuse. What could truly be happening is the shift in market dynamics, from the troubled emerging markets to developed countries which are slowly but surely finding their feet. Politicians’ dragging their feet on most issues, not just in India but around most of the emerging markets is a prime cause. It is domestic politics and policies in these countries which have come to fore, especially the over dependence on China.

Yes, conspiracy theories make interesting reading, give food for thought but like food, you should know what is good for health and what needs to be avoided. Conspiracy theory is like what junk food is to health – tasty but unhealthy. What do you choose – healthy or tasty?