Archive for the ‘Credit Crisis’ tag
Market Prediction week of October 20, 2008
Here’s what we’re looking at for this week, the factors, and how they will effect the market:
-Lower earnings reports (negative)
-Lower libor rates (positive)
-Higher dollar (mostly positive)
-Prospects of lowered Fed Funds rate (positive)
-Negative economic indicators (negative)
Finally something close to a comprehensive future look at the economy and a response to Robert Scoble
NYSE market selloff limits.
Will the NYSE circuit breaker limits cause a major selloff to wait until after 2pm? See the selloff threshold detail here on the NYSE site. At a certain point the NYSE will actually ‘take a break’ or shut down for the day.
Defining the significance of minor market changes.
Let’s get a clear definition of the market being “up” or “down”. In Nassem Taleb’s book The Black Swan he talks about the fact that any minor changes are not even worth mentioning. Any changes in the market of less than 1 % (currently 100 pts) in my eyes does not make the market truly “up” or “down”, especially during the day. Consistent changes of 1% over the course of a week amounting to a total of 5% are significant. Drops during the day of 8% (800 points) during a day are significant. Drops of 200 points the open market day after 7 central banks drop interest rates .5% in concert are significant. That fact alone, without the market consideration was significant. A drop of 30% over the course of the year is significant. Watch out for the media that gets excited like this morning when the market was up around +1%. This is not significant. The Federal Treasury talking about buying up banks on a macro level is definitely significant.
If you weren’t convinced about the ‘economic downturn’ before, maybe you are now?
It still baffles me when people want to stand behind ‘this isn’t a recession’. Well, its not technically a recession by definition, but the measurement for a recession is based on GDP and a length of time. We may not currently be in what is defined as a ‘recession’ based on these 2 factors, but we’re in more of a sudden condition, whatever it is that you want to call it. Those two metrics are heavily lagged by what is actually going on. The media has deemed it an ‘economic downturn’. Is this a new definition?
The depth and breadth of the credit crunch from a recovery viewpoint
This will not be an overnight recovery. Here’s why:
-Consumers are in way over their heads in debt. This consists of credit cards, student loans, car loans, home loans, and home equity loans. The ratios are insane, and before this got really serious, the average home equity was at record lows, credit card debt levels were at record highs and saving was at a record low. Home price levels are so low that most families can’t afford to move, or will take a loss on it if they do.
The real Dow Jones Industrial Average reaction to the collective action of the central banks: An analysis
Considering that under normal market conditions, an occurrence as massive as the collective action Tuesday of the central banks around the world lowering rates .5% in unison would push the DJIA up at least 500 points, because that is such a significant event, I have deduced a net effect analysis.
