Why Did The Dow Crash 500 Points?

Although today the VIX spiked over 35% higher on fear, a quick spot check to all my contacts on Wall Street confirms institutional investors are not scared like in 2008; rather, they are very uncertain about how much the economy will slow. Unlike 2008, this means elite investors are not worried about derivative bubbles or $250 million real estate projects built-out with no demand. However, top investors are trying to gauge just how far the economy will pull back.

No one likes a recession. But let’s get real: the U.S. has never really come out of the first recession —  we merely restarted what was a stalled engine. Sure, the National Bureau of Economic Research says the recession ended and we moved from contraction to expansion. But so long as housing prices keep tanking and unemployment remains high, we are not in a total growth-driven economy. As soon as we accept the new normal of very low economic activity (relative to a pure bull economy), then we can stop fearing another crash and learn to accept the muddle. And this muddle is going to have it’s pain because we are making a huge transition from an industrial-based economy to an information-based economy all while dealing with an inverted pyramid of demographics (which I explain in more detail here).