Interesting Article from DailyFX

Below is an interesting article from DailyFX.com:

Last week’s stock sell-off was blamed on news that Dubai was seeking to suspend international debt payments, boosting fears of the largest sovereign credit default since Argentina in 2001. However, this seems to have been an excuse to speed up a larger underlying shift in global capital markets that likely began in October as a Morgan Stanley index of world stock prices fell the most in eight months while the VIX Index, a stand-by measure of investors’ fear, rose the most in a year. A correction lower in equity prices seems justified. Relative equity valuations have looked overdone for some time now with prices trading at the highest levels relative to earnings in seven years. Further, the market’s mood seems to be in transition, with the hearty sigh of relief that produced the risk rally of recent months giving way to more sober thinking about what is to happen once interest rates invariably reverse course higher and the flow of government cash dries up. There are no easy answers to such questions. Companies’ “better than expected” earnings of the past several quarters have relied heavily on cost cuts, which have usually come by way of firing workers. Naturally, one firm’s cost reduction is another’s lost demand as unemployed people reasonably cut back spending, so what has been good for stocks may prove far from encouraging for the economy as a whole as private demand is called upon to resume driving growth.