NationStates Jolt Archive

I don't know much about the stock market, but all the news stations are on it and it sounds fairly serious nonetheless.

What's happened so far:
* Rumors of an economic crackdown caused the Chinese stock market to drop 9%, losing $140 billion in value, the biggest loss in a decade
* Ripple effect in European, American markets
* Dow Jones dropped 250 points in two minutes; 400 points so far
* That's equivalent to a 4% total drop; for perspective, the markets dropped 9% after 9/11 and 10% on "Black Monday" of 1987

Any financial wonks out there care to enlighten us on the magnitude of the situation? I hope it's not too bad. A Second Great Depression would be inconvenient at best. :p

Yeah lets get some optomistic economists in here to reassure us because I'm not listening to any pessimists no matter how reality based their arguments are :p

Oh, it's started! About time for the Chinese to lose their footing, now all the welfare states will collapse. Harsh mediicine, but hey...

Great Depression? No. The world financial system is too strong for that to happen, and the protective measures implemented after 1929 and 1987 prevent that kind of drop from happening again. This decline is bad, but it's only a one-day selloff.

Mostly, it's fear of an economic slowdown, especially in China where they economy is pretty much in bubble mode that is driving the selloff. Investors want to take some profits off of the table in case an economic slowdown causes havoc in the markets; we have to remember that the Shanghai index hit a record high yesterday and it's not surprising that some kind of selloff might occur. Fear of a recession in the US is also factoring in to it; it was incredible irresponsible of Greenspan to start fanning fears of recession with his comments, especially when we still have no evidence that one is likely. Hell, the Fed hasn't even started cutting rates yet, which is a pretty clear sign that they consider the economy in a good enough condition to avoid any kind of stimulus.

We also have to remember that the market hasn't had a correction in a long time; it was getting pretty overbought, and it needs to come down a little to correct that imbalance. This kind of drop will clear out some of the overbullishness in the market and attract new buyers; the fundamental condition in terms of profits, P/E ratio, and corporate earnings are all still very strong. Also, this market has not been very volatile, which is usually not a good thing in terms of performane; if we see a sharp drop in stocks followed by a sharp recovery above the previous high, it will be a good sign that the market is strengthening rather than weakening. The other option is, of course, a bear market.

Fear of a recession in the US is also factoring in to it; it was incredible irresponsible of Greenspan to start fanning fears of recession with his comments, especially when we still have no evidence that one is likely.

You mean Bernanke, right? Greenspan isn't the Fed chair anymore.

Oh, it's started! About time for the Chinese to lose their footing, now all the welfare states will collapse. Harsh mediicine, but hey...
The phrase "when pigs fly" springs to mind.

*snip*
Yeah, I didn't really think it was that bad. It's just that sometimes with the news networks it's hard to tell if something pretty serious is happening or if it's merely a slow news day.

You mean Bernanke, right? Greenspan isn't the Fed chair anymore.

No, it was Greenspan who said it; he was speaking at some event or another and he talked about the possibility of recession.

That's why I considered it irresponsible; he's not the Fed chief anymore, but people still listen to what he says and if he starts inciting fear in the market with talk of a recession it could have serious effects on the economy. You don't talk recession unless it's already happening...it's just a terrible idea that can evolve in to a self-fulfilling prophecy.

The phrase "when pigs fly" springs to mind.

They already got into space...

Yeah, I didn't really think it was that bad. It's just that sometimes with the news networks it's hard to tell if something pretty serious is happening or if it's merely a slow news day.

Oh, it's serious...the drop in the Chinese stock market is going to incite fears of a repeat of 1997, but I don't think the Asian economies are in the same poor condition that they were in the late 90's.

The question is whether this fear becomes self-sustaining and leads to an actual economic decline.

They already got into space...
In the form of freeze dried bacon, no doubt. But that's not my point.

Don't bullish markets only last like what? 3 years?

Although China is worrying, a 9% drop is pretty serious.

Heh... they're now floating rumors on CNN that the NYSE may have experienced a "technical glitch"... apparently, the trading officials are on the floor going over the data, and word is that there really isn't any other explanation for stocks dropping so sharply so suddenly.

EDIT: Here's the chart:

http://img254.imageshack.us/img254/1071/bignf4.gif

Looks like a glitch to me...

Don't bullish markets only last like what? 3 years?

Yes. Cyclical bull markets last roughly three years.

Now, there are larger trends called secular bull and bear markets, which contain a number of cyclical periods with an overall bullish or bearish trend over a long period of time.

For example, 1982-2000 was a secular bull market, while 1966-1981 was a secular bear market, and 1942-1965 was a secular bull, and 1929-1941 was a secular bear, and so on. The present market is most likely another secular bear market since it has continued the uptrend that was in place back in the 1980's and 1990's.

It's only down 375 points now. Whew.

The MSNBC article (http://www.msnbc.msn.com/id/3683270/) has this interesting paragraph:

Because the worst of the plunge took place after 2:30 p.m., the New York Stock Exchange’s circuit breakers, designed to halt precipitous moves, were not activated. The White House said Tuesday it was monitoring movements in the financial markets.

I didn't realize they had automatic ... what would you call them? systems in place to stop trading when a slide gets too bad.

EDIT: Here's the chart:

http://img254.imageshack.us/img254/1071/bignf4.gif

Looks like a glitch to me...

Yeah, that deep spike doesn't seem real- especially since there wouldn't be enough people buying right now to bring it back up again so swiftly.

It's only down 375 points now. Whew.
They're saying now that the worst of it was just a glitch in the Dow Jones servers. Hmmm... I wonder if they'll start having time warps too... :D

The MSNBC article (http://www.msnbc.msn.com/id/3683270/) has this interesting paragraph:

I didn't realize they had automatic ... what would you call them? systems in place to stop trading when a slide gets too bad.
Yeah, I'm pretty sure that's been standard for decades.

This is no big deal. There is no massive world-economy-ruining crash.
Relax. The economies of the world are doing just fine.

Certain markets were overbought and inflated while others were just doing a little realignment. It is nothing to panic over. This is normal and not completely unexpected. In normal markets you have a drop after a surge, especially when earnings are not all that hot. It happens. Set record highs again and again, eventually there is going to have to be realignment in the markets.

If you want to panic, wait until you have a week of this, then panic.
Otherwise, it isn’t anything to worry about.


FYI – Pigs in Space was a skit on the Muppet Show.

They're saying now that the worst of it was just a glitch in the Dow Jones servers. Hmmm... I wonder if they'll start having time warps too... :D


Yeah, I'm pretty sure that's been standard for decades.

When did the NYSE start using Jolt to host their Operations?

And "standard for decades" ... la-di-dah ... :p

I don't know much about the stock market, but all the news stations are on it and it sounds fairly serious nonetheless.

What's happened so far:
* Rumors of an economic crackdown caused the Chinese stock market to drop 9%, losing $140 billion in value, the biggest loss in a decade
* Ripple effect in European, American markets
* Dow Jones dropped 250 points in two minutes; 400 points so far
* That's equivalent to a 4% total drop; for perspective, the markets dropped 9% after 9/11 and 10% on "Black Monday" of 1987

Any financial wonks out there care to enlighten us on the magnitude of the situation? I hope it's not too bad. A Second Great Depression would be inconvenient at best. :p

Well, if it is coming, it was only a matter of time. It's going to happen eventually, but I hope it doesn't get too serious very quickly.

In the form of freeze dried bacon, no doubt. But that's not my point.

No, they went into space. (http://www.islandnet.com/~pacific/spacepig.html) But I suppose you like to denigrate the accomplishments of Porcine-Americans.

I didn't realize they had automatic ... what would you call them? systems in place to stop trading when a slide gets too bad.

Oh yeah, ever since 1929 and 1987. They don't want a repeat of either of those ever again; if the market starts to tank beyond a certain point, trading is halted for a certain period of time. It prevents panic selling from getting out of control.

Oh yeah, ever since 1929 and 1987. They don't want a repeat of either of those ever again; if the market starts to tank beyond a certain point, trading is halted for a certain period of time. It prevents panic selling from getting out of control.

Wouldnt that be a bit like stealing though? What if that person wanted to sell before the price went lower? Shouldnt they get their money before the valude drops?

Wouldnt that be a bit like stealing though? What if that person wanted to sell before the price went lower? Shouldnt they get their money before the valude drops?

The idea is to prevent the stock from going lower than the set daily limit. This in turn prevents panic selling from wiping out huge amounts of value; if anything, it saves investors billions, even trillions of dollars by preventing a repeat of the 1929 or 1987 crashes. It's meant to prevent investors from losing their money, and if they want to sell they can once the limit is lifted again.

I mean, there's a huge difference between a 20% drop based upon fundamentals and a 20% drop based upon panic; today's selloff was in all honestly completely baseless and had far more to do with fear than with any real data.

The idea is to prevent the stock from going lower than the set limit. This prevents panic selling from wiping out huge amounts of value; if anything, it saves investors billions, even trillions of dollars by preventing a repeat of the 1929 or 1987 crashes.

Why does the value of stock drpp so dramatically if there is a huge sell off? Why does the number of shares being held by investors make a difference at all? Isn't it about how much of that companies services are being bought that determines the success of the company?

Why does the value of stock drpp so dramatically if there is a huge sell off?
(just a guess)
I think supply and demand come into play, huge supply of stock, low demand.

Why does the number of shares being held by investors make a difference at all?
Companies could go bankrupt or outright collapse, plus people could lose huge amounts of money.

Heh... they're now floating rumors on CNN that the NYSE may have experienced a "technical glitch"... apparently, the trading officials are on the floor going over the data, and word is that there really isn't any other explanation for stocks dropping so sharply so suddenly.

EDIT: Here's the chart:

http://img254.imageshack.us/img254/1071/bignf4.gif

Looks like a glitch to me...

Everything I've heard indicates that there was a data backlog relating to the insanely high volume of trading, and they managed to rectify it, which brought the extra -200 points into the light.

At least that's what I heard, don't take it for certain.

What's also very important is the fact that the markets managed to regain their footing somewhat, later in the day, up about a hundred points from the low. Investors managed to regain their more rational senses, and realized what was occuring wasn't all that bad, and the panic-selling ended.

This is little more than a blip on the economic screen.

Unless the PRC becomes really assholish. Then that radically drives forward my predicted timeline of economic crisis and hegemonic war.

Why does the value of stock drpp so dramatically if there is a huge sell off? Why does the number of shares being held by investors make a difference at all? Isn't it about how much of that companies services are being bought that determines the success of the company?

Mainly supply and demand combined with investor confidence in the company; even if a company is doing well, if it has a ton of shares (as many tech companies still do as a result of the dot-com bubble) or if investors aren't confident in its ability to continue to perform at a level that justifies its valuation, it will not do well.

Stock performance is a proxy of corporate performance, but often it factors in other information and longer-term variables that can negatively or positively impact a stock in the short term.

Something like this happened in a Tom Clancy book...it resulted in Japan invading us and a crazy pilot crashing his plane into congress killing most of it and the president, and Jack Ryan, not even VP yet became Prez...so if the same thing happens, and we all know life imitates Tom Clancy books...say hello to President Rice.

Heh... they're now floating rumors on CNN that the NYSE may have experienced a "technical glitch"... apparently, the trading officials are on the floor going over the data, and word is that there really isn't any other explanation for stocks dropping so sharply so suddenly.

EDIT: Here's the chart:

http://img254.imageshack.us/img254/1071/bignf4.gif

Looks like a glitch to me...

Wow, thats good news for our economy. The computer systems that affect the world's monitary supply can have sudden "glitches".

Wow, thats good news for our economy. The computer systems that affect the world's monitary supply can have sudden "glitches".

It could be worse, of course: We could have no protection systems whatsoever. I'd take the risk of 4% drop because of a computer glitch than a 40% drop like we had in 1929.

Part of the reason for the limits is that many investors use automated trading systems - when the stock dips below a certain level, the computer automatically triggers a sell order (to cut losses before it really tanks). Problem is, this will lower the price more, triggering other sell offs, which trigger yet more, and so on. This has happened several times in the past and they tried implementing various methods to get around it, but in the end there is sometimes an irrational reaction that a human wouldnt make. If there are not enough auto-buy options for that stock, it can be a bad feedback loop.

If you are quick, you can then pickup the dumped stock at a fraction of its value.

The other possibility is the lack of confidence and the panicky nature of a lot of traders - they see a sell-off and assume someone knows something they dont, so they follow suit. This spooks other investors who react just as irrationally.

Right now the P/E ration of most companies is right around 16 (generally considered the standard benchmark for ages) so any further fall will make those stocks look very attractive. This is not like a bubble situation where we saw a lot of stocks with a P/E of 28! That was irrationally overvalued and had to crash. These days they are more rationally priced, so there shouldnt be much of an adjustment in the NYSE.

China on the other hand... that has been grossly overpriced.
It was in desperate need of a readjustment and probably has a lot farther to fall with a communist government talking about 'reigning in the markets', 'controlling the levels of investment', and 'more stable trading'.

Unfortunately a lot of Chinese companies list on the NYSE, which makes those stocks tank. Then you have all the foreign companies with investments in China, who suddenly find those investments looking more risky - which devalues their expected earnings and thus reduces the value of the stock.

A couple of companies picked the wrong day to announce their new Chinese investments.

Right now the P/E ration of most companies is right around 16 (generally considered the standard benchmark for ages) so any further fall will make those stocks look very attractive. This is not like a bubble situation where we saw a lot of stocks with a P/E of 28! That was irrationally overvalued and had to crash. These days they are more rationally priced, so there shouldnt be much of an adjustment in the NYSE

And forward P/E is something like 13 or 14, which is incredibly low. Stocks could easily rise 20% or more without affecting P/E due to the incredible profit and earnings growth we've had over the past few years. They are undervalued compared to both the past 20 years and the historical average of the market.

This is a short term pullback in a short-term overbought market that we've needed for a long time and nothing more.

Good time to invest coming up.

Everyone lost a lot of money because the Yen carry trade (basically shorting the yen) started to unwind. Money moved back from Europe/US to japan to cover/limit losses as the yen surged in value. It also sparked a flight to quality from the brics - as always happens. So basically everyone took it in the pants.

But a stronger Yen drives the Nikkei lower too (see today for example). It's sort of lose lose.

I wouldn't put to much emphasis on the shanghai markets effect worldwide. It's still a relatively small exchange in global terms, and it's not like anyone really knows what's going on there anyway, as implementing IFRS has been almost impossible for the Chinese owing to the fact they are really, really, really short of accountants. (A legacy from the cultural revolution).

But as vetalia says, the fundamentals don't indicate that there is going to be the start of a huge secular bear cycle. This is more sort of a jolt caused by global capital flows. The S&P is at about 18 times earnings, which is a little high historically, but not out of whack, and even though earnings growth is slowing, it is not negative, so the fundamentals tend to support it. (Except for the financial sector, where there are going to be a lot of restated earnings).

The US economy is slowing however. But that has nothing to do with wall street.

Bear Market Bare Market Beer Market!

Oh, it's serious...the drop in the Chinese stock market is going to incite fears of a repeat of 1997, but I don't think the Asian economies are in the same poor condition that they were in the late 90's.

The question is whether this fear becomes self-sustaining and leads to an actual economic decline.
Will it even mean much for Western economies?

And yes, that is true. Expectations can be the source of the worst economic calamities.

Will it even mean much for Western economies?


The shanghai drop was caused by the government stepping in about using borrowed money to speculate. It really wasn't the primary cause of the global sell off. (Though no doubt it contributed to the jitters).

Risk premiums have been repriced this week is all, causing a lot of currency shorts (yen, swiss franc) to be covered. Iran and subprime mortgages had more to do with it than china.

Mind you Greenscam didn't help either. Though it's not like a recession is unexpected.

Oh, it's started! About time for the Chinese to lose their footing, now all the welfare states will collapse. Harsh mediicine, but hey...
Not so soon. ;) That might come, but not right now.

Bah, I probably lost a grand or so. Silly, but as long as I don't sell, nothing bad has really happened.