Thread: Stock Market Crashed

As many know the stock market plummeted today world wide.

Who's fault do you think it is?

Will this lead to another depression just world wide?

just check out some of the headlines

ABC News: Business Index

Originally Posted by ardit217

Who's fault do you think it is?

Fault? What goes up must come down.

Such is the nature of markets and the human emotions of fear and greed.

We've got a good discussion about the ongoing 'crash' over here Webmaster Discussion Forums

I think the term "crash" is a bit drastic and inaccurate.

Originally Posted by Zap

I think the term "crash" is a bit drastic and inaccurate.

The Australian market dropped over 7% for the biggest one day decline in over 20 years.

India dropped almost 10% in the first minutes of trading. They halted trading for a couple hours because of it.

Hong Kong down 8% on the day.

Those aren't mere fender benders.

I still say it's more of a correction than a crash and it's no bloody wonder with the overinflated values of some of these stocks. You'd think people would have learned their lesson with the .COM bubble of the 90s. People have a short memory.

Originally Posted by Zap

I still say it's more of a correction than a crash and it's no bloody wonder with the overinflated values of some of these stocks. You'd think people would have learned their lesson with the .COM bubble of the 90s. People have a short memory.

people never learn the lesson and never will.

markets boom and then they crash, they boom again then they crash over and over. With smaller "corrections" in between.

Oh, and if you want to place the blame on this current market meltdown to anything in particular its called the Japanese Yen Carry Trade.

The Japanese economy had been in a long drawn out recessions for years, decades. So they lowered interest rates to science fiction levels. Traders could borrow money, in Yen, for 0.5% interest. They used that money to buy stocks, and gold and oil and real estate in US dollars, Canadain Loonies and Euros. Cheap cheap money.

The act of purchasing investments priced in currencies outside of the Yen would mean effectively selling the Yen to exchange them to dollars and euros. This drove the Yen lower, and it effectively made the borrowing costs on those cheap loans even cheaper.

Buying all those investments drove up prices of stocks, commodities and real estate. Japan has been effectively funding these booms around the world.

But eventually loans need to be paid back.

This requires selling the assets on the market, driving prices down. Then converting the currency back to yen, buying yen and thus driving up the value of the yen. As the yen increased in value the loans not yet paid started to get much more expensive.

This created a cascading effect of more traders wanting to unload their positions and pay back the loans from Japanese banks. This in turn made the yen rise more. The unwinding of the carry trade has been accelerating for some time now.

Eventually this becomes a contageon that begins to infect small individual investors who see their stock and mutual fund portfolios declining. They then want to unload those positions, driveing stcoks even lower.

Lower price creates more fear, more fear causes even lower prices. A visious positive feedback loop.

Then we get meltdowns like this, panic selling, as people throw in the towel. The market capitulates at this point as all the nervous nellies sell out. Once they are out there is not much sellers left so the next step is upwards.

^ wow you know your stuff.

I think it is correct to say that the emerging stockmarkets are well overvalued and are due for a massive correction. Many of them have dropped by 10% or more within a couple of days.

I think a crash is a correct term to describe it. My understanding is that a crash refers to a large percentage fall within a very short period of time i.e. a day or two. Whereas a correction or bear market can only be ascribed when the process is over. Therefore the crash of 1929 referred to a 10% or so drop in a single day. Whereas the whole market was to end up 90% lower at the end of the bear market a few years later. Nowadays, it is difficult to get falls of 10% or more in day as many stockmarkets have built in mechanisms to suspend trade. My opinion is that there is still quite some way to go.

In agreement.
Not a crash, but a much needed correction in all the markets.

Originally Posted by zxpro168

Therefore the crash of 1929 referred to a 10% or so drop in a single day. Whereas the whole market was to end up 90% lower at the end of the bear market a few years later.

I think that right there is why I wouldn't call this a crash. I don't expect that the market is going to be at 90% less than it is today in a year or two.


It might be a good time to buy in a few days.

what would qualify as a crash for you?

massive drops within moments are not enough?

A 15% crash in Asia over 2 days isent enough?

Im pretty sure that America is in a recession
The next step would be a depression

A Recession is a period of an economic contraction, sometimes limited in scope or duration

A depression is a period during which business, employment, and stock-market values decline severely or remain at a very low level of activity.

1929, because of everything, the banks got hit hard.

Today, one has to look at the viability of banks, large and small.
Unless they are lying to us, banks have good capitalization on the books now.

Oil is now down to 89.72 a barrel.

US congress still in debate on what kind of stimulus to help the country.

Originally Posted by Zap

I think that right there is why I wouldn't call this a crash. I don't expect that the market is going to be at 90% less than it is today in a year or two.


It might be a good time to buy in a few days.

if you have the money this is a great time to invest.
But thats because risk = profit

its very risky because you dont know what will happen within the next year.

Zap, this is a crash as most people would define a crash. A large drop in a short time.

The crash in 1929 was the one day sell of of 10%. The subsequent long bear market that continued for years was not the crash. That was just the drawn out correction that followed after the huge run up in the markets during the "roaring 20's".

Stock Market Crash of 1929
The 1920’s were a time of peace and great prosperity. After World War I, the “Roaring Twenties” was fueled by increased industrialization and new technologies, such as the radio and the automobile. Air flight was also becoming widespread, as well. The economy benefited greatly from the new life changing technologies.

As the Dow Jones Industrial Average soared, many investors quickly snapped up shares. Stocks were seen as extremely safe by most economists, due to the powerful economic boom. Investors soon purchased stock on margin. Margin is the borrowing of stock for the purpose of getting more leverage. For every dollar invested, a margin user would borrow 9 dollars worth of stock. Because of this leverage, if a stock went up 1%, the investor would make 10%! This also works the other way around, exaggerating even minor losses. If a stock drops too much, a margin holder could lose all of their money AND owe their broker money as well.

From 1921 to 1929, the Dow Jones rocketed from 60 to 400! Millionaires were created instantly. Soon stock market trading became America’s favorite pastime as investors jockeyed to make a quick killing. Investors mortgaged their homes, and foolishly invested their life savings in hot stocks, such as Ford and RCA. To the average investor, stocks were a sure thing. Few people actually studied the fundamentals of the companies they invested in. Thousands of fraudulent companies were formed to hoodwink unsavvy investors. Most investors never even thought a crash was possible. To them, the stock market “always went up”.

By 1929, the Fed raised interest rates several times to cool the overheated stock market. By October, the bear market had commenced. On Thursday, October 24 1929, panic selling occurred as investors realized the stock boom had been an over inflated bubble. Margin investors were being decimated as every stock holder tried to liquidate, to no avail. Millionaire margin investors became bankrupt instantly, as the stock market crashed on October 28 th and 29 th. By November of 1929, the Dow sank from 400 to 145. In three days, the New York Stock Exchange erased over 5 billion dollars worth of share values! By the end of the 1929 stock market crash, 16 billion dollars had been shaved off stock capitalization.

To make matters worse, banks had invested their deposits in the stock market. Now that stocks were obliterated, the banks had lost their depositors money! Bank runs started, where bank patrons tried to withdraw their savings all at once. Major banks and brokerage houses became insolvent, adding more fuel to the bear market. The financial system was in shambles. Many bankrupt speculators, who were once aristocracy, commit suicide by jumping out of buildings. Even bank patrons who had not invested in shares became broke as $140 billion of depositor money disappeared and 10,000 banks failed.

The 1929 stock market crash was beneficial for some, however. Jesse Livermore correctly forecasted the economic crisis and shorted. He made over 100 million dollars! Joseph Kennedy, John F. Kennedy’s father, sold before the 1929 stock market crash and kept millions in profit. Kennedy decided to sell because he overheard shoeshine boys and other novices speculating on stocks. Livermore and Kennedy were individuals are known as the “smart money”, who profit regardless if the market is skyrocketing or plummeting.

The stock market crash of 1929 launched the Great Depression. The Depression was the time from October 1929 to the mid 1930’s. Mass poverty occurred then, as many workers lost their jobs and were forced to live in shanty towns. Former millionaire businessmen were reduced to selling apples and pencils on street corners. One third of Americans were below the poverty line in the Great Depression. The Dow Jones finally surpassed its 1929 high, a full 26 years later in 1955.

The stock market crash of 1929 was identical to any other financial bubble. The classic pattern of extreme euphoria and irrational expectations will always lead to devastating financial crashes. Learning how to identify these timeless patterns will allow you to profit whether the market is rising or falling.