Talk Is Cheap and Has a Price

Maybe it's self-serving for a writer to say, but words sometimes speak louder than actions. Words, rather than actions, are certainly at the crux of this week's stock market volatility. And words could well be at the crux of why there may be more drama to come.

To recap, China's stock market crashed overnight Monday because officials had uttered some words about squashing speculation. Back on this side of the planet, strategists and analysts say that until Tuesday, they couldn't attend a client meeting without hearing the constant head-shaking mantra of "we really need a correction," or "this market is just unbreakable."

So the China stock market selloff quickly turned into the U.S. economy story, where fears of a recession became the hook for a correction many traders had virtually willed into existence. On the heels of a weak durable goods report Tuesday, the reminder from ex-Federal Reserve Chairman Alan Greenspan that recessions are possible (not "probable" mind you) was particularly resonant. The subsequent outrage over whether Greenspan should or shouldn't have said so just proves how much the market probably needed to hear it.

Traders on Wednesday were just as easily sedated by the soothing words about future economic stability from current Fed Chairman Ben Bernanke. He said the markets acted "normally," that there was not a single trigger for the selloff, and that the economy later this year is likely to be stronger than the fourth quarter of 2006. The Commerce Department that morning downwardly revised fourth-quarter GDP growth to 2.2% from 3.5% previously. The markets bounced, albeit somewhat anemically.