As I sit here watching the stock market drop another 500+ points, the feeling of deja’ vu starts to creep in. Wasn’t it just over 10 years ago that the housing market was seeing almost mythical growth and the common citizen was spending a bit more than they could afford, but easy credit allowed them to defer the cost for that instant gratification purchase. Stocks were rising at unsustainable levels and we had the Fed telling us that they had everything under control and that we should keep on spending because the economy is humming. Even my stockbroker encouraged me to not worry about the volatility and that it was a great time to be in the market.

Today, we have historically low interest rates due to the Fed artificially holding down the interest rates to help promote of economic growth. The Fed did the same thing back in the early 70’s for those of you old enough to remember 3% Mortgage rates. They were trying to spur economic growth caused by previous wage and price controls that weren’t working. Sound familiar?

The problem with this approach was that something had to give way eventually since inflation isn’t something you can just bottle up. The result was hyperinflation and the interest rates jumped to almost 20% for a home mortgage and closer to 30% for credit cards in the late 70’s and early 80’s. This tightening of credit snuffed out the purchase market and the housing prices plummeted. This slow down negatively impacted the stock market and economic growth slowed down dramatically.

Fast forward back to today’s economic climate and there are way too many similarities to ignore. We have the Fed again manipulating the rates hoping to spur economic growth; we have inflation pressure; we also have people spending beyond their means and all the while we are being told that the economy is humming. We have Banks easing credit requirements to spur more borrowing. Most importantly, we are seeing dramatic volatility in the Stock Market due to the Smart Money knowing the stock values are unsustainable at these levels and looking for the exits.

Thankfully, I didn’t take my stockbrokers advice 10 years ago, and I’m not taking it today. When I see this kind of volatility my belief is that the Smart Money (those with more resources and wisdom than I) are starting to sell off as quickly and quietly as they can without causing a panic. The common folk are encouraged to hold on regardless of the “pullback” and end up providing the exit for the Smart Money. In the end, the common folk hit a pain threshold that forces even them to flee the market at the much lower prices…..selling to the Smart Money, of course.

With all of this commotion going on, there is one thing I can always rely on… my stockbroker telling me this is a great time to be in market.