How panicky it was today!

As all major indices dropping straight down today, I felt like the episode of August 2007 had returned. That was when the two Bear Stearns mortgage funds were shuttng down, and most quant equity strategies were losing money big time. It was the harbinger of what was to come in 2008.

Could today's event be something similar? Or the market just got short-circuited due to the fear of European contagion?

The selling was across the board. Everything, including stocks that are unrelated to international trade or finance, went down rapidly, before recovering some.

Dow at one point was down nearly 1000 point. Some of the stocks I was watching were down more than 20%. Truely amazing.

I have been reading up on European Union and Euro. I'm inclined to think that the sovereign debt problem is nowhere near the mortgage debt problem we've had. Greece will be dealt with or will linger on and shrink. Portugal and Spain will be dealt with or will linger on and shrink. Euro may continue to drop or even collapse. It will be a source of great volatility. But then so what? It was just a monetary experiment, an idea or a strategy to counter the dominance of the U.S. and the rise of Asia. ECB is not an effective central bank. If the problems it now face will bring it down, so be it. The nations in EU would then have the freedom to choose their own destinies.

The real economies will continue. Businesses that can take advantage of the weak Euro are going to thrive.

So why the panic given the small size of all PIIGS economies? They're neither a critical source of energy or raw material nor a major consumer market. They're not going to derail  the global economic recovery led by US and China.

I actually bought some shares during the few minutes of big drop.

Gold price, reflecting the great uncertainty over Euro, has gone over $1200/oz. This is precisely the reason to hold gold. Yet, some of the precious metal funds have been disappointing. For example, Vanguard's VGPMX has not only under-performed some of its peer funds, but have under-performed both GLD and GDX. Now we know for the hedge using gold to play well, we should get the real gold, or gold futures.

We've been right about raising cash, limiting exposure to banks and increasing short. But, rotating more into industrial, material and energy now appears a bit pre-mature.