another market crash?

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BARLI
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another market crash?

Post by BARLI » Fri Aug 17, 2007 11:24 pm

c.f. and all others who traded markets back in 1987, doesn't the entire situation at the stock market looks like it was in 87? Panic, no liquidity, credit problems etc... Yesterday the Fed, in a surprise announcement in Washington, cut the so-called discount rate yesterday by 0.5 percentage point, to 5.75 percent, market wizards in Schwager's book say: " go against the Fed and central banks of other countries". I'd appreciate your opinion on the situation, even if some of you are not trading today...

AFJ Garner
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Post by AFJ Garner » Sat Aug 18, 2007 2:34 am

For those of us who have studied markets long enough ( the first crash I took a personal interest in was 1973/74) things are distinctly deja vu. Fine, this time the trigger is the US sub prime mortgage affair but the characteristics are always simlar. The stock markets had been going up strongly since 2003 and a correction was in the offing. It was just a question of when and by how much (the latter is still to be seen).

Surely, few of can be surprised by the events of last few weeks.

efficiency
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Post by efficiency » Sat Aug 18, 2007 1:15 pm

In my opinion, I consider a "crash" an orchestrated event. Inventory posturing.

IF the NYSE experiences opening gaps DOWN on most issues, I don't think its a matter of "everyone" long having an epiphany simultaneously. True order imbalances result in delayed opens/halts. Specialists (and market makers) can induce orderflow (aka volume). Besides, a princely portion of aggregate NYSE stock does NOT float, though it is marked to market.

Of course, there should be a good alibi or scapegoat. 1987 was Baker's speech about the dollar in Germany. 1989 was UAL. I suppose 73-74 was a combination of the oil embargo and Watergate.

The sub-prime flavor of the week, at worst, represents roughly 4% of aggregate mortgages. And.........fully secured by tangible collateral (albeit quite possibly over-appraised and location dependent). Also, NOT an overnight event. Makes for good press. Hit's "home" to Joe Sixpacks.

Funny, no one has yet mentioned 9/18/01 "V" bottom after a week hiatus. I knew that one was coming. Just couldn't capitalize on it. How often is a "V" bottom reliable? It "worked" that time BECAUSE the news was external/unpredictable to the specialist community. Gap downs, clean out stops, shake out non-stopped paper, and immediately peddle it back.

Kennedy's assasination resulted in a halt that remaining Friday afternoon and consequent gap downs Nov 25th. How applicible was that event to the "economy"?

1987 (and 1989) may have been crashes, but no further persistance in the form of a bear market. The Chinese water torture of 1973 and 1974 was worse. Both in magnitude and, more importantly, duration. The latter relating to the time value of money.

There has been a lot of M&A activity in recent years and thus LESS stock out there. Some examples, of JUST the stocks I used to follow include: Georgia Pacific, Sears, SBC Communciations, Cox Communications, Nextel, Golden West, Web X, Claires Stores, and Michaels Stores. No doubt, many many others. Wall's Street's function isn't capital formation, it's................ selling paper. At times, paper is "needed" to sell.

One more issue would be the inverted demographic pyramid (with its inherent lifesyle and spending changes) facing the US. In my opinion, Wall Street will make an attempt to confiscate much of that PASSIVE 401-K money (the modern day sucessor to pensions) and some point before the bulk of them retire. That would take a crash/bear market scenario to succeed at it.

Hmmm, a few years off? The peak birth year was 1957.

The present correction was foretold to a degree once the number of new lows on the NYSE exceeded 50. This first occured June 21st. Then a re-test, then resumed July 10th (with the indices peaking July 19th).

We may have had capitulation Thursday. The positive bias of option expiration (along with gap ups across the board Friday) clouds the view.

For the most part, price does not follow news. News FOLLOWS price. And.......PRICE is what we transact in.

BARLI
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Post by BARLI » Sat Aug 18, 2007 2:21 pm

interesting responses...thank you so much. When I saw Korea tumbling 6.5% it smelled like another crash to me. By crash I mean one down day in one of major US stock indexes at least 10%. I was expecting the crash to happen this coming Monday or Tuesday with some trigger during this weekend just like it was on 87-th crash, but Fed seemed to "influence" the traders/investors by its decision to cut rate. Robert Prechter says that Fed cannot help the market anyways:
In contrast to the assumptions of conventional macroeconomic models, people are not machines. They get emotional. People become depressed, fearful, cautious and angry during depressions; that's essentially what causes them. A change in the population's mental state from a desire to expand to a desire to conserve is key to understanding why central bank machinations cannot avert deflation.


Jim Rogers to CNN said:
Normally you have markets go down 10% or so every couple of years. We haven't had a 10% correction in the stock market in nearly five years. I don't know if this is the beginning of it, but we've got a lot of corrections coming. It wouldn't surprise me to see a little bounce--say if a central bank cuts rates. But that will just lead to the markets falling further late this year or next year. It would be better for the market, it would be better for investors, and it would be better for the world if we went ahead and cleaned out the system. If they do cut rates in the U.S., it would be pure madness. Because the market's down 7% or 8% from an all-time high? My gosh, what's that going to say about the dollar? What's that going to say to foreign creditors? What's that going to say about inflation? The Federal Reserve was not founded to bail out Bear Stearns or a few hedge funds. It was founded to keep a stable currency and maintain its value
(source: http://money.cnn.com/galleries/2007/for ... une/7.html )

Actually Friday's market move really feels like Fed was doing what it did to help Bear Stearns go bankrupt so that there's no second LTCM story repeated. Any thoughts?

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Post by Nussgipfel » Mon Aug 20, 2007 7:13 am

Maybe just another sharp and painful correction in a secular bear market lasting for many more years with disappointing returns with a buy and hold strategy? Sometimes wonder if it is possible that financial markets participants and the central banks are also re-inventing themselves just as you have with other industries such as pharma, biotech and technology. Hence could both schools of thoughts (depression versus hyper-inflation) be wrong in the end since we learned from the 1929/32 and 1973/74 experience and how to deal with crashes?

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