The Dow Jones industrial average Monday dropped more than 1,000 points (more than 6 percent) before American stocks made up some of the losses.• Quotes: “This is all about fears of a hard landing in China. This morning’s opening of the Dow Jones Industrial Average, where it briefly dropped by 1,000 points, is bare-faced evidence of a market overreaction,” says Campbell Harvey, a professor specializing in financial markets and global risk management at Duke University’s Fuqua School of Business.“Shanghai fell today by 8.5 percent. Since the beginning of the year, it is down only 1 percent. Over the past 12 months, the market is up 43 percent. It is hard to call this a crash when your stock market is up 43 percent over the past year. Shanghai would have to plunge another 30 percent to make the 12-month return zero.”“Note that two-thirds of Shanghai stocks finished limit down at 10 percent, which means the correction will likely continue tomorrow.”“China has a number of levers at its disposal given it is sitting on $3.65 trillion in reserves. That’s a lot of fire power.”“Remember the $700 billion TARP (Trouble Asset Relief Program) of October 2008? Remember how difficult that was to get through Congress? In contrast, Chinese authorities can do what they want, instantly, with their $3.65 trillion in reserves.”“The effective spend on TARP was less than $450 billion. That is small change compared to the Chinese reserves of $3.65 trillion. They could spend the equivalent of the TARP tomorrow and it would make only a minor dent in their reserves.”• Bio:Campbell Harvey is a business professor specializing in financial markets and global risk management at Duke's Fuqua School of Business. http://www.fuqua.duke.edu/faculty_research/faculty_directory/harvey/• For additional comment, contact Harvey at: cam.harvey@duke.edu
