Market Crash

It's all Greek to me

2010-05-06T22:30:00.000-07:00

At a time when the debt crisis in Greece is gaining momentum and spreading fear and uncertainty into stock markets around the globe, we witness the largest ever intraday points decline on the Dow Jones Industrial Average. At its lowest point, the Dow was down 9 per cent or 998.5 points before rebounding to finish the day down 3.2 percent.

The official spin is that a clumsy trader had 'fat-fingered' a market order and mistakenly entered 16 Billion instead of 16 Million in a sell order. Not sure what to make of the situation at this early stage, will be interesting to see how the trading action unfolds over the coming days.

Top DJIA percentage declines

2009-08-19T21:28:00.000-07:00

Top ten largest one-day decline in percentage for the Dow Jones Industrial Average Index:

12 December 1914 -24.39%
10 October 1987 -22.61%
28 October 1929 -12.82%
29 October 1929 -11.73%
11 June 1929 -9.92%
18 December 1899 -8.72%
12 August 1932 -8.40%
14 March 1907 -8.29%
29 October 1987 -8.04%
21 July 1933 -7.84%

Top DJIA points declines

2009-08-19T21:15:00.000-07:00

Top ten largest one-day decline in points for the Dow Jones Industrial Average Index:

29 September 2008 -777.68
15 October 2008 -733.08
17 September 2001 -684.81
1 December 2008 -679.95
9 October 2008 -678.91
14 April 2000 -617.77
27 October 1997 -554.26
22 October 2008 -514.45
31 August 1998 -512.62
7 October 2008 -508.39

45 percent of world's wealth destroyed

2009-03-16T16:21:00.000-07:00

45 percent of world's wealth destroyed: Blackstone CEO

"Private equity company Blackstone Group LP CEO Stephen Schwarzman said on Tuesday that up to 45 percent of the world's wealth has been destroyed by the global credit crisis."

Dow loses another 733 points

2008-10-15T22:33:00.000-07:00

DJIA plunges 733 points, S&P 500 drops 9%.

Dow plunges 777 points

2008-09-29T22:25:00.000-07:00

DJIA plunges for a record points decline of 777 points or 7%.

Bubbles, Bubbles everywhere

2006-06-15T00:52:00.000-07:00

Bubble, Bubble, Who's in Trouble?
Worried investors are hunting for safe havens. But with so many bubbles about, it's anyone's guess which way to turn

"Too many bubbles, too many potential busts—that's what's confusing the global financial markets these days. Housing markets are sky-high from Boston to Shanghai. Stock prices in India and Russia have roughly doubled in two years, with emerging markets such as Turkey, Indonesia, and Argentina not far behind. Prices for copper, oil, and aluminum have enjoyed equally outsize gains."

"In this world of bubbles, investors see central banks armed with giant pins they're prepared to use."

"The Bank of Japan and the European Central Bank are tightening monetary policy as well, depriving markets of the low-cost capital that helped fuel the global booms."

"But for ordinary investors and big institutions trying to place their bets, there's a big unanswered question: Which bubble or bubbles are going to pop, and which ones will prove sustainable?"

"If housing prices plunge in the U.S., will the ensuing economic collapse be limited to the U.S. or spread worldwide?"

Dow plunge erases 2006 gains

2006-06-13T20:25:00.000-07:00

Share markets around the world are still trying to come to terms with a number of issues including rising inflation, interest rates and energy prices, reduced liquidity and appetite for risk.
Stocks Plunge on Mixed Inflation Signals; Dow Tumbles 86 Points, Erasing 2006 Gains

"Wall Street resumed its retreat with another session of steep losses Tuesday as declines in oil and gold prices did little to calm anxiety over inflation. The selloff erased the Dow Jones industrial average's gains so far in 2006."

"The Dow tumbled 86.44, or 0.8 percent, to 10,706.14, after losing nearly 100 points on Monday. The Dow is now down 0.11 percent for 2006."

"Overseas stock markets continued suffering from concerns that rising interest rates will U.S. demand for foreign-made products. Japan's Nikkei stock average plunged 4.14 percent to a two-year low, and stocks in India slid 4.4 percent to a 52-week low."

"Elsewhere overseas, Britain's FTSE 100 lost 1.8 percent, Germany's DAX index sank 1.92 percent and France's CAC-40 was lower by 2.24 percent."

The 1929 crash

2006-06-08T17:18:00.000-07:00

The roaring twenties saw great prosperity with a booming economy driven by industrialization and technology. People from all walks of life invested their new found wealth in the stock market. As the market steadily grew and gathered momentum, more and more individuals were drawn in, tempted by quick profits. Easy money fuelled the boom with amateur investors using margin loans and extreme leverage to finance increasingly risky stock and mutual fund purchases.

With speculation rampant throughout all levels of society, the Federal Reserve raised interest rates several times in 1929 to try and slow the economy. The 24th of October 1929 saw the beginning of the crash as panic selling gripped the stock market. As almost every investor tried to sell, there was nobody left to buy, causing the market to plunge. The Dow Jones Industrial Average index continued falling from a peak of 381.17 until bottoming out to 41.22 in July 1932 for a loss of approximately 90%.

Interestingly not everybody lost during this event, Jesse Livermore who became known as the 'boy plunger' made over 100 million dollars profit by shorting stocks on the day of the crash, he went on to become a legendary figure on Wall Street.

The great depression followed the crash, lasting from 1929 to the mid 1930's. Millions lost their life savings, even those not directly invested in the stock market were affected as many banks lost depositors funds. Others committed suicide by jumping out of windows, unable to cope with margin calls and the realization that they had lost everything. The Dow Jones eventually did recover, it took 25 years to make up the lost ground and surpass the 1929 high.

Market Crash
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Golden age of liquidity is drying up

2006-06-05T20:14:00.000-07:00

Around the Markets: Golden age of liquidity is drying up

"Liquidity surged in the past decade, fueled by relaxed monetary policies by central banks, globalization, new technologies and such exotic financial instruments as derivatives. They in turn drove down interest rates and bond yields and encouraged investors to pump more money into riskier assets, propelling stock markets."

"No more."

"Rising inflationary expectations, growing political risks and, most especially, actual and anticipated increases in interest rates are combining to make investing and speculation more expensive."

""The era of underpriced capital in constant supply is ending," said David Roche, president of Independent Strategy, a global economic and financial consulting firm in London. "The global cost of capital is rising, and risk appetite will diminish." He warned that if liquidity kept shrinking, it would "squeeze asset prices and damage economic growth.""

""The sell-off in risky assets is a sign that global excess liquidity, which has been buoyant for many years, has finally begun to shrink," said Joachim Fels, chief fixed-income economist at Morgan Stanley in London."

"Both the 1994 crash in the bond market and the bursting of the technology bubble in 2000 were preceded by sharp contractions in excess liquidity"

What are emerging markets telling us?

2006-05-30T18:01:00.000-07:00

Are You Panicking Over the Emerging-Markets Slide?

"Fears Over Interest Rates Send Emerging Markets Tumbling"
"Dealing on Indian Exchange Suspended"
"Worst Emerging Markets Run Since Russian Default"

"These alarming reports, which appeared in the May 23 editions of The Wall Street Journal and Financial Times, indicate the depth of the slide in emerging markets around the world. And while those items referred to a single day's carnage, the decline has been going on for weeks now."

This article got me thinking that the sharp falls in emerging and secondary markets in the past week or so are probably due to reduced levels of liquidity and hot money closing out secondary positions to maintain their core holdings. Hedge funds have long been blamed for causing stock market volatility by quickly moving around money chasing gains or fleeing falls. As volatility continues, one would expect most fund managers to continue doing so, exacerbating market moves. The secondary markets are usually the ones to react first and give clues as to the direction of the 'tide' of money and mood of investors or market makers. Perhaps they are sending ominous signals.

Market Crash
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Stock market volatility continues

2006-05-22T21:35:00.000-07:00

Global interest rate fears and uncertainty over economic growth prospects are beginning to take their toll on share markets the world over. Last week was particularly brutal with sharp declines across all major indexes across the globe. This volatility appears to be continuing this week with more heavy falls already underway.

Ten days that shook the world's markets

"From Stockholm to Tokyo, New York to Istanbul, market mayhem swept across the world last week, unleashing violent movements on stock markets and foreign exchanges everywhere, and hammering down the price of commodities such as copper and gold."

"Stephen Lewis, of bankers Insinger de Beaufort, says it's too early to write off the risk that the events of the past few days could be the trigger for a full-blown financial crisis. 'Volatility rises, to the extent that it has in equity and commodity markets in recent days, when emotions take over; when actions in the markets are forced; when survival is at stake. In such circumstances, there can be no reliable forecasts of how far markets will move,' he warned."

"The worldwide wobble started with the dollar. A warning from G7 finance ministers last month about imbalances in the global economy, and a hint from Federal Reserve chairman Ben Bernanke that he might halt the rise in interest rates, brought the greenback bears out of hiding, and triggered a frenzy of selling."

"Through the fog of market panic last week, analysts said it was important not to forget the underlying economic causes of the upheaval. For several years now, economists have been watching with growing alarm as the US spent more than it earned, running up a record current account deficit with the rest of the world - worth almost 7 per cent of GDP last year."

"This economic story will play out over months, not at the breakneck speed of the financial markets, and it is hard to predict how its ramifications will ripple across the world. 'There's no new trend established yet,' said HSBC's Bloom. 'It's an unsettled time.' But Bernanke, whose hands are on the world's most important economic lever, will have to hope he isn't forced to win the confidence of the markets the way his predecessor, Alan Greenspan, did - by stepping in to stop the stock market crash of 1987 turning into a global financial crisis."

Caution on Hedge Funds

2006-05-16T17:17:00.000-07:00

Plenty of debate in recent times regarding the unchecked growth of hedge funds and their potential to cause major disruptions to the financial system. It seems that we have not yet learned the lessons from the LTCM collapse.

Bernanke Urges Caution on Hedge Funds

"Financial authorities must stay attuned to any potential risks posed by the growth of hedge funds, an investment domain of the wealthy that has become more popular with smaller investors, Federal Reserve Chairman Ben Bernanke suggested Tuesday."

""Authorities should and will try to ensure that the lapses in risk management of 1998 do not happen again," Bernanke said, referring to the collapse of Long-Term Capital Management, a hedge fund that had received a $3.6 billion private bailout."

"Today some 7,000 to 9,000 hedge funds in the United States command an estimated $1 trillion in assets and are believed to account for as much as 20 percent of all U.S. stock trading."

"Hedge funds - high-risk, largely unregulated and secretive investment pools - have traditionally been the investment domain of the wealthy but have become popular with small investors in recent years."

"The Fed chief suggested that financial institutions and others that do business with hedge funds make sure they are doing all they can to sufficiently blunt their risks. "Continued focus on counterparty risk management is likely the best course for addressing systemic concerns related to hedge funds," Bernanke said."

Housing bubble threatening economy

2006-05-15T20:38:00.000-07:00

Homes glut pressures US economy

"The US economy peaked in January and is tipping into an unstoppable "bust" whether or not the Federal Reserve halts its cycle of interest rate rises, Lombard Street Research has warned."

"The economic research group said the US property market was crumbling, taking away the key prop of the consumer boom."

""The real US hard landing starts now," said Charles Dumas, the chief global economist. "It's going to be a long grind for two or three years, not as bad as Japan but going in that direction."

The price of new houses in the US has been tumbling for five months at an annualised rate of 18.4pc, while mortgage applications are down 20pc."

"Elsewhere, Banque AIG has warned that a US housing bust risked plunging the economy into a deeper downturn than generally expected."

""House prices have been falling hard for five months and all the guidance from builders points to a continued fall. You cannot ignore the threat," said Bernard Connolly, chief global strategist."

""A fall of perhaps 20pc in US residential construction in the course of the next year or so is not an implausible scenario. That would be a big deal. Rates will have to come down, perhaps by rather a lot," he said."

The Nasdaq crash

2006-05-11T21:53:00.000-07:00

During the mid to late 1990's computing technology was advancing rapidly, the most notable innovation was the internet. The internet became immensely popular as individuals and organizations quickly recognised its potential. Many companies rushed to commercialize this greenfield opportunity, attracting a lot of attention with some high profile success stories. Startup companies easily attracted capital as investors became infatuated with anything internet or technology related and threw money at these companies without questioning the viability of the businesses they were funding. During this time it was not uncommon to see the share price of a dot com rise by hundreds or even thousands of percentage points as the Nasdaq index rose from approximately 1000 to over 5000 in four years.

In the year 2000 reality quickly set in as investors suddenly came to the realization that they were caught up in a bubble and euphoria turned into panic. The 10th of March 2000 saw the Nasdaq Composite index peak at 5048.86. Both professional and amateur investors quickly realized that the bubble had burst and progressively sold down anything internet or technology related. Over the course of the next 2.5 years the Nasdaq Composite index dropped from a peak of 5048.86 to a low of 1114.11 for a loss of 78% causing approximately $4.2 trillion of shareholder wealth to be lost.

The Nasdaq (or dot com) crash is a textbook example of a stockmarket correction ending a speculative mania.

With the benefit of hindsight, the warning signs were painfully obvious. The Wall Street cheerleaders extolled the virtues of the 'new economy' saying 'this time it's different' and traditional valuation methods were no longer relevant. The majority of dot com companies had no earnings, yet they commanded extraordinary valuations. Speculation was rampant amongst the general public, with scores of individuals giving up their regular jobs to become online daytraders.

The aftermath of the Nasdaq crash was far reaching. Millions of technology workers lost their jobs, stock options and life savings, investors were decimated as many internet companies became worthless. The economy went into recession in 2001 as the Federal Reserve repeatedly lowered interest rates in order to stave off deflation and stimulate the economy. The effects are still felt in the present day as some particular sectors including technology, telecommunications and internet are still out of favour with investors.

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Fed raises rates again

2006-05-10T17:18:00.000-07:00

The Federal Reserve raised interest rates to 5 percent on Wednesday. This is the 16th consecutive increase and brings the key rate to its highest level in 5 years. It has also clearly signaled that further rate rises may be required to keep inflation under control.

Fed Raises Key Rate to Highest Level in 5 Years

"The committee judges that some further policy firming may yet be needed to address inflation risks but emphasizes that the extent and timing of any such firming will depend importantly on the evolution of the economic outlook as implied by incoming information"

Gold price hits 25 year high

2006-05-09T21:37:00.000-07:00

Rising geopolitical tensions and uncertainty have clearly demonstrated the value of Gold as a traditional defensive asset and store of wealth. At present there appear to be a number of factors that will support upward pressure on the price of gold.

Gold Tops $700, Oil Exceeds $71 on Iran Nuclear Plan Concern

"Gold jumped to $700 an ounce in New York for the first time since October 1980 and crude oil rose above $71 a barrel as tensions increased over Iran's nuclear- research program."

"Gold also gained on speculation central banks will sell their dollar reserves and buy gold. Some of China's economists are urging the country to quadruple its gold reserves to 2,500 tons from 600 tons, Reuters said, citing an official industry newspaper."

"A weaker dollar is also helping boost the allure of gold. The metal traditionally moves in the opposite direction of the currency."

"``People who are bullish on gold are doubtful the Fed is committed to fighting inflation,'' said Daniel Vaught, an analyst at A.G. Edwards & Sons Inc. in St. Louis."

MSCI World Index hits record high

2006-05-09T00:45:00.000-07:00

World stocks storm past tech bubble high

"World stocks stormed past highs reached during the 2000 tech bubble on Monday, with the MSCI World Index <.MSCIWD> hitting a record 349.28."

"The all-country world index has gained more than 12.5 percent so far this year while its emerging market stablemate is up nearly 25 percent."

"Such rises, along with gains in other major indexes, have raised some concerns that equities are heading for another fall -- especially as interest rates are generally rising worldwide."

All booms bust

2006-05-04T23:59:00.000-07:00

Some timely advice in this article from rich-dad Robert Kiyosaki:

ALL BOOMS BUST! Words of Caution from Robert Kiyosaki

"Lately, I have been asked if we are in a real estate bubble. My answer is, "Duh!" In my opinion, this is the biggest real estate bubble I have ever lived through. Next, I am asked, "Will the bubble burst?" Again, my answer is, "Duh!" "

"So the answer to the question, "Will the real estate bubble bust?" is an emphatic, "Yes. All bubbles bust." The reason I write this alert is because this time, when the bubble bursts, I think it will be a monster. Never in my life have I seen so much money being made on such weak fundamentals. If you think the last recession caused by the bubble bust was bad, the coming recession will be at least twice as bad. It might lead to a depression."

"How long will the bubble last and keep expanding? I do not know. I just wanted you to know that I am currently preparing for a crash, an economic recession, and possible global depression. Why? Because this is a very big worldwide bubble... the biggest I have ever seen."

Oil price may hit $100

2006-05-03T21:10:00.000-07:00

Iran minister: Crude oil may hit $100

"Iran's deputy oil minister, M. H. Nejad Hosseinian, on Tuesday said crude oil prices are likely to hit US$100 a barrel this coming winter as demand outpaces supply."

"By winter, it is very much possible," Hosseinian said, when asked by reporters if global crude prices would peak at around US$100 barrel.

"Oil supply in the short term cannot be increased," he told reporters in New Delhi, according to Dow Jones newswires.

Beware the Real Estate Bubble

2006-05-02T17:00:00.000-07:00

Experts agree that at present real estate bubbles exist throughout many cities in the world. This situation should be closely monitored as it has the potential to cause disruption to financial markets and economies alike when the bubble inevitably bursts.

From The Economist magazine: "The worldwide rise in house prices is the biggest bubble in history. Prepare for the economic pain when it pops."

A good reference for the real estate bubble can be found at the following site:

Housing Bubble Facts and Figures

Sell in May and go away

2006-05-01T20:08:00.000-07:00

The start of May is an opportune moment to remember the old adage: Sell in May and go away.

`Sell in May' Strategy in U.S. Stocks Seen as Prudent This Year

"`Sell in May and go away' became a Wall Street axiom two decades ago, thanks to the Stock Trader's Almanac. The strategy may be more compelling than usual for U.S. stock investors this year, according to its editor."

"The Dow Jones Industrial Average may tumble as much as 30 percent between May and October from the six-year high set last month"

"We have a very lofty market entering a seasonably unfavorable time in the most vulnerable period in the election cycle"

"Financial-newsletter writers are increasingly calling for stocks to fall 10 percent, according to Investors Intelligence. Advisers predicting a ``correction'' climbed in the week ended April 21 to 28.8 percent, the most since August 2004"

Galbraith dies

2006-04-30T21:15:00.000-07:00

Professor John Kenneth Galbraith died over the weekend aged 97. A brilliant Keynesian economist and leading proponent of political liberalism and progressive values, he wrote more than 40 books and was known for his caustic wit and elegant prose which made complex subject matter accessible. He was also known to be a keen observer of the financial markets and theorized that crashes were a consequence of human nature.

"After the October 1987 stock market plunge, when the Dow Jones industrial average tumbled 22% in a single day, Galbraith drew comparisons to the epic crash of 1929."

"Avarice on the part of myopic investors, he said, was a recurring theme. "I'm inclined to think that fools and their money will always be separated," he said."

A prophet let down by history

"His 1958 best-seller The Affluent Society, a mocking critique of Mr and Mrs Middle America in their "mauve and cerise, air-conditioned, power-steered car" laid out his theory that modern life is dictated by oligopolies telling people what to buy through saturation advertising - and damn the public good."

"The family which takes its mauve and cerise, air-conditioned, power-steered and power-braked car out for a tour passes through cities that are badly paved, made hideous by litter.... They ... spend the night at a park which is a menace to public health and morals. Just before dozing off on an air-mattress, beneath a nylon tent, amid the stench of decaying refuse, they may reflect vaguely on the curious unevenness of their blessings. Is this, indeed, the American genius?"

"He was the prophet of boom and bust, recounting cycles of human folly down the ages. The Great Crash: 1929 is an indictment of US capitalist elites, an expose of the market group-think and collusion that entrapped the unwary in the Ponzi scheme of speculation on margin."
"But if his analysis does not stand the test of time, his insights into mass psychology certainly do. As the US economy digs deeper into debt than ever, one might dwell on his Scottish low-church warning that there is no such thing in economics as a free lunch."

Commodity bull run may be ending

2006-04-27T17:02:00.000-07:00

It seems that we are in the midst of a classic speculative boom in commodities at present, we must watch this situation closely for signs of distress. It is possible that a crash in commodity prices could also have flow on effects on other markets and the greater economy in general.

Commodity bull run may be in the final lap

"After a boom that took the prices of many raw materials to the highest levels in 25 years, the commodities market seems to be entering its final, manic phase."

" "Current high prices are unsustainable," Simon Hayley, an economist at Capital Economics Ltd said this month in an analysis of commodity prices."

"In the Internet crash, for example, some of the smaller Web companies found it impossible to raise cash at the start of 2000. By the end of the year it was impossible for any of them to find investors."

"In the same way, what's happening in the silver market today may well happen in other commodity markets within a few months."

Greenspan warns against his own creation

2006-04-12T14:25:00.000-07:00

It's interesting to see the man who is responsible for creating asset price bubbles due to his easy money policies is now warning that they face correction.

Global economy faces asset price fall: Greenspan

"Former Federal Reserve Chairman Alan Greenspan warned on Wednesday a global glut in liquidity would result in a fall in asset prices."

"He said the market value of assets worldwide had been rising faster than nominal gross domestic product globally due to a decline in real long-term interest rates over the years and a significant fall in real equity premiums."

"He said asset prices would begin to fall, but did not predict when that would happen."

" "I am reasonably certain that what we are looking at today is an abnormal situation," he said."

Welcome to mktcrash.blogspot.com

2006-03-22T22:04:00.000-08:00

Welcome, this blog will be an invaluable resource for investors, speculators and traders alike.
It will explore the workings of a market crash with particular emphasis on the share market and real estate. I hope to de-mystify the process of a market crash and arm readers with the knowledge that will help detect and avoid market crashes.

http://mktcrash.blogspot.com/