Time to buy, sell or hold …
Fri Oct, 24, 2008Talks around the world about the possible (or recession fever) financial crisis that affect global economy. Below snippets on global financial crisis in history.
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Former British Prime Minister, Harold Wilson once remarked, “A week is a long time in politics”. The same could certainly be said about the financial markets. Last week, the Dow Jones Industrial Average plunged 18.2% for its worst weekever, the UK’s FTSE 100 index closed below 4,000 for the first time in five years, Japan’s Nikkei 225 plunged 24% for the biggest weekly decline in its more than 50 year history, and Australia’s S&P/ASX 200 slumped 16%, the biggest rout since 1992.
Yesterday (Tuesday), stock-markets around the world rose sharply. US stocks staged the biggest rally in seven decades on a government plan to buy stakes in banks and a Federal Reserve-led push to flood the global financial system with dollars.
The S&P 500 Index rebounded from its worst week in 75 years with an 11.6% advance, its steepest since 1939, and the Dow Jones climbed 11%, eclipsing its previous record 499-point gain in March 2000 and posting its best percentage advance since 1933.
The FTSE 100 index has risen by almost 12% in just two days following Gordon Brown’s emergency bank nationalisation scheme. It rallied again on Tuesday closing up 3.2% at 4,394.
Japan’s Nikkei 225 jumped 14.2%, its biggest gain on record and lead the surge by Asian stocks. The MSCI Asia Pacific Index rose 9.5%, its biggest advance since 1998. Clearly the unprecedented global effort by governments and central banks to avert the world financial crisis is starting to impact.
Taking a step back, two scenarios are before us; it’s the end, and we are about to fall into something similar to The Great Depression, or this current market represents the best buying opportunity for around 100 years.
When markets are at record highs, some investors are anxious to get into the “next big opportunity”, with no regard as to where that opportunity is on the economic cycle. Alternatively when we are faced with the best opportunity for capital growth, there is a reservation.
Efforts by governments and central banks to avert the banking collapse are beginning to be felt by the markets, with liquidity restored and the immediate danger past. However, a recession still looms and volatility will continue, there will be increased unemployment, and house repossessions. The US and Britain’s high exposure to debt means that consumers are ill-prepared for an economic slowdown. Many people will feel the pain, but the vast majority will not.
Are we moving into a depression such as 1929? Whilst we have been facing a crisis, it is much smaller in terms of output and unemployment. In the decade 1931-1941 US unemployment was 25%.
The world has the most enormous propensity to recover from many disasters, man made and natural. 9/11 2001 was prophesied to be a turning point to a major economic depression, it was not. By 5 October 2001, markets fully recovered.
1995 – the Kobe earthquake in Japan on 17 January, killed over 6,400 people and destroyed a large portion of the city, with 100,000 made homeless, but recovery was rapid.
1998 – August, the Russian financial crisis lead the rouble to lose two thirds of its value of less than a month earlier against the US dollar, and at the height of the crisis inflation reached 84%. By November the market was back to previous levels.
1990 – First Gulf War, six months later the market had made a full recovery.
1987 – Black Monday 19 October, at the end of October, stock markets in Hong Kong had fallen 45.8%, Australia 41.8%, Spain 31%, the United Kingdom 26.4%, the United States 22.68%, and Canada 22.5%. By May 1989, the market was back to where it had been.
Source: http://www.intelligentinvestments.biz
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QOTD: “I really do think that any deep crisis is an opportunity to make your life extraordinary in some way” - Martha Beck, Author
