The Dow has lost 5% of its value in the last three days, 8% for the more tech-heavy NASDAQ – why? Is it over?

All I know is (1) the stock market can only go three ways – up, down, or stay the same, (2) Warren Buffet taught us that, given enough time, the stock market always goes up, and (3) bears are more scary than bulls.

Monday’s “crash” was a perfect storm of various factors:

First, the Fed was accused of “slow-walking” the obviously-needed decrease in interest rates, constraining our economic growth, possibly leading to recession and disappointment that the world was being denied increased stimulus by the U.S. When in doubt, blame the Fed.

Second, the central bank of Japan hurt even more. When I first taught economics, a dollar would buy 330 Yen, compared to only 140 now. Higher interest rates usually cause currencies to appreciate, and the Yen did, following actions of their central bank. Unfortunately, this changed the “carry trade” when you borrow in a country with low interest rates and invest in a country with higher rates. Investors who borrowed in Yen to invest in dollars had to sell their U.S. stocks to repay their Yen loans.

Third, there is an inverse relationship between stocks and uncertainty, like war. With the assassination of two terrorist leaders and the increase in U.S. naval forces in the area, uncertainty increased significantly.

I”m not losing any sleep . . .