John Bogle, founder of mutual fund giant Vanguard, says investors should calm down and "ignore their way through" the current market turmoil, if possible.
News that Treasury Secretary Henry Paulson would allow the government to effectively write Wall Street a blank check to cover bad debts linked to subprime mortgages sent stocks soaring in early trading.
Up or down, none of it makes sense, says Bogle.
"The market has swung up and down, valuing American business at a trillion dollars more on one day, and trillion dollars less the next day. That's what the markets are saying," Bogle told CNBC.
"Anybody that thinks American business is going up and down in its cash flow and intrinsic value a trillion dollars a day out to have his head examined."
U.S. companies are likely to double earnings over the next decade, easily outpacing economic growth of even 5 percent, Bogle said. Even an investor with a relatively short time horizon of 10 years is in fine shape, he said.
"I would tell somebody, look, American business is American business. What's going on here has nothing to do with investing. It has everything to do with speculation. It has everything to do with markets. It has everything to do with black swans," Bogle said.
"Just try and ignore your way through it. This too shall pass away."
He was particularly critical of the actions taken by government regulators like the Securities and Exchange Commission (SEC), as well as the Treasury and Fed.
"I've never seen such an inadequate response from the regulatory authorities and from the government. It's put a tourniquet on here, but a band aid on there, and every time they nail something down on the right, something pops up over on the left," Bogle said.
In addition to a vaguely defined Treasury plan to mop up toxic assets on the balance sheets of the remaining investment banks, the SEC banned short-selling on hundreds of financial companies in an effort to slow stock losses.
Bogle is not amused.
"The short selling thing, and I'm not an expert on that, it strikes me as almost insanity to do something like that. I don't know if they don't know exactly how the markets are working," he said.
"There's interference where there shouldn't be. And probably not interference where there should be," Bogle said.
"I've never seen such pandemonium in the markets, and I've only been in the business for 57 years. I've seen 10 bear markets. I have never seen anything like this," Bogle said.
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