Stock Markets down all around the world

[Jaga]

By early afternoon in central Asia, the Dow Jones Industrial Average futures contract was down 491 points at 12,130, Nasdaq futures were at 1774.25, down 75.25, and the Standard & Poor's 500 futures were at 1265.10, down 60.2.

Futures contracts don't always move in perfect lockstep with the underlying indexes, but by comparison, the Dow industrials fell 382 points on Sept. 20, 2001, just days after the terrorist attack on the Twin Towers, and by 387 points on Aug. 9, 2007, shortly after the recent credit crunch first emerged.

U.S. markets were closed Monday for the Martin Luther King holiday. Trading resumes Tuesday.
Paul McCulley, managing director and portfolio manager with bond powerhouse Pimco, on Monday called for the Fed to lower rates now rather than wait for its next scheduled meeting. "Sometimes when you are ill, you make an appointment with your doctor; other times, you go straight to the emergency room. Now is one of those other times. The Fed must cut immediately and aggressively for the health of the economy," McCulley said.

www.marketwatch.com/news/story/stock-futures-pointing-sharp-losses/story.aspx?guid=%7B9A894790%2D5D69%2D48C6%2D8303%2D18EE41CA5D1C%7D

[Jaga]

Soros: world faces worst finance crisis since WW2

VIENNA, Jan 22 (Reuters) - Billionaire investor George Soros said the world was facing the worst financial crisis since World War Two and the United States was threatened with recession, according to an interview with the Austrian daily Standard.

"The situation is much more serious than any other financial crisis since the end of World War Two," Soros was quoted as saying.

He said over the past few years politics had been guided by some basic misunderstandings stemming from something which he called "market fundamentalism" -- the belief financial markets tended to act as a balance.

"This is the wrong idea," he said. "We really do have a serious financial crisis now."

Asked whether he thought the United States was headed for a recession, he said: "Yes, this is a threat in the United States".

He added he was surprised how little understanding there had been on how recession was also a threat to Europe.

European shares fell nearly 6 percent on Monday, their biggest one-day slide since the Sept. 11 attacks of 2001, as fears of a U.S. recession and more write downs in the financial sector sparked a broad-based selloff. (Reporting by Karen Strohecker)

www.reuters.com/article/bondsNews/idUSL215828320080122

[pieter]

AEX index

The AEX index, derived from Amsterdam Exchange index, is a stock market index composed of Dutch companies that trade on Euronext Amsterdam, formerly known as the Amsterdam Stock Exchange. Started in 1983, the index is composed of a maximum of 25 of the most actively traded securities on the exchange.

Rules

Selection

The AEX index composition is reviewed annually on March 1 based on the closing prices on the final trading day of January. These changes are effected on the following trading day. At this review date, the 25 companies with the highest share turnover (in Euros) over the previous year deemed to be "representative of the Dutch equity market" are admitted to the index. Companies which have fewer than 25% of shares considered free float on Euronext Amsterdam and a free-float market capitalisation ranked lower than 25th are, however, ineligible for inclusion. Unlike some other European benchmark equity indices (such as the OMXS30), if a company has more than one class of shares traded on the exchange, only the most actively traded of these will be accepted into the AEX. If a company or companies are removed from the index due to delisting, acquisition or another reason, no replacements are made until the next annual review.

Weighting

The AEX is a market value-weighted index. At each annual review, the index weightings of companies in the index are capped at 15%, but range freely with share price subsequently. The index weights are calculated with respect to the closing prices of the relevant companies on March 1.

Calculation

The value of the index is calculated by multiplying the value of each of the stocks by the weight factor assigned to that stock, then summing the resulting numbers and dividing by 100.

History

The AEX started from a base level of 100 index points on 3 January 1983 (although a value of 45.378 is used for comparison with current levels as the index value was divided by 2.20371 at the start of 1999 as the Netherlands moved from the guilder to the Euro). The index's peak to date is 703.18, reached on 5 September 2000 at the height of the dot-com bubble. The index value more than halved over the following three years before recovering in line with most global financial markets.

Composition

The 23 stocks below constitute the index as of 1 November 2007, after the removal of Numico due to its takeover by Groupe Danone. ABN AMRO has also been removed from the index since the last annual reclassification.

[pieter]

en.wikipedia.org/wiki/AMX_index
en.wikipedia.org/wiki/Recession

[pieter]

The Netherlands and International Economics

The Netherlands are a small country with a very open economy. For centuries, globalization has been an important driving force that largely determined this country’s prosperity. Just think of the Golden Age and the East India Company. These days globalization still is important. Over half of the products manufactured within the Netherlands are intended for export. There are many large corporations that are originally Dutch and that currently operate on a global scale. Philips, Unilever, Shell and ABN-AMRO are the main examples. But smaller companies also deal with foreign countries: they buy their raw materials or semifinished products abroad or sell their finished products there. International service (i.e. trade, transport and financial services) is a further indispensable pillar under the Dutch economy.

And it is not just the businesses that have this global orientation, but due to the internationalization of the Dutch economy the government too is involved in international collaboration. In the EU policies are developed that influence the economic development of the Netherlands, and Dutch representatives participate in international policy alignment and control of the world economy in such organizations as the World Trade Organization (WTO), the International Monetary Fund (IMF) and the OECD.

Economy
The Netherlands is heavily industrialized. The chief manufactures are textiles, electrical machinery, electronics, transport equipment, iron and steel, refined petroleum, ships, processed foods, plastics, and chemicals. Agriculture is specialized, mechanized, and efficient, and yields per acre are high. Dairy farming is also important and the country is known for its cheese industry. Cattle and poultry are raised. The major crops are truck-farm commodities, beets, and potatoes; relatively little grain is raised. Horticultural production (especially bulbs) and fishing are also important. The country's few natural resources include coal, natural gas, and petroleum.

A considerable amount of the country's wealth is contributed annually by financial and transportation services. Amsterdam is one of the world's major financial centers, and Rotterdam is one of the world's busiest ports. The Dutch merchant marine is well developed, and tourism is a substantial industry. The Netherlands has a large foreign trade; the main exports are machinery, textiles, petroleum products, fruits and vegetables, and meat. The Netherlands belongs to the European Union and numerous regional and global economic organizations.

The weak dollar ($) and the (to) strong Euro (€) is bad for the very important Dutch export sector which is vital to the Dutch economy as a whole. Because the Dutch financial sector is strong and present in the USA and the London financial district with it's American and British branches, the crisis in the American economy and in the free fall of the Stock markets is very bad for the Dutch financial sector and so private investors too.

I am worried because a considerate sum of my income is invested in stocks!

Pieter

[pieter]

Warsaw Business Journal

22nd January 2008
Black Monday as stock markets worldwide lose value

This was a black Monday on bourses worldwide and the shares were sold on a scale that has not been observed since 11 September 2001. One of the indices of the Warsaw bourse WIG20 lost 6.7%, which is the highest amount since April 2000 and that was the result of sharp drops on the Asian markets. "I believe this is hysteria. Economic growth in Poland will remain strong and there are no impulses for such sharp drops. Soon the investors will calm down," said Jacek Tyszko, analyst with DM BOS. Experts are uncertain whether the drops will be short-term, as according to observations, investors in foreign markets are preparing for long-term drops.

Nobody is capable of predicting what will happen to the global economy, but the United States is threatened by recession and some even claim the same could happen in Europe. The problem is that indices all over the world move in the same direction and thus sudden shifts in Europe and the USA also affect Poland. "This works like a plague," said Jacek Wisniewski, chief economist of Raiffeisen Bank.

www.wbj.pl/?command=article&id=39743&

[pieter]

In conversations with colleages on the radio and on Dutch TV, radio and newspapers the year 1929 was mentioned too!

upload.wikimedia.org/wikipedia/commons/e/e1/Crowd_outside_nyse.jpg

[pieter]

Wall Street Crash of 1929
From Wikipedia, the free encyclopedia

The Wall Street Crash of 1929, also known as the Crash of ’29, was - taking into consideration the full scope and longevity of its fallout - the most devastating stock market crash in American history. Three catchphrases, Black Thursday, Black Monday, and Black Tuesday, evoke this collapse of stock values. All three are authentic, for the crash was no one-day affair. The initial crash occurred on Black Thursday (October 24, 1929), but it was the catastrophic downturn of Black Monday and Tuesday (October 29, 1929) that precipitated widespread panic and the onset of unprecedented and long-lasting consequences for the United States. The collapse continued for a month. Economists and historians disagree as to what role the crash played in subsequent economic, social, and political events. Some consider it to be the beginning of the Great Depression, but most believe it was just one symptom.

It occasioned the institution of landmark financial reforms and new trading regulations.

At the time of the crash, New York City had grown to be a major metropolis and its Wall Street district one of the world's leading financial centers. The New York Stock Exchange (NYSE) was the largest stock market in the world. The roaring twenties was a time of prosperity and excess in the city, and, despite warnings of speculation, many believed that the market could sustain high price levels. Irving Fisher proclaimed shortly before the crash, "Stock prices have reached what looks like a permanently high plateau." The euphoria and financial gains of that great bull market were shattered on October 24, 1929, Black Thursday, when share prices on the NYSE collapsed. Stock prices fell on that day and they continued to fall, at an unprecedented rate, for a full month.
In the days leading up to Black Thursday the market was unstable. Periods of panic selling and high volumes of trading were interspersed with brief periods of rising prices and recovery. After the crash the Dow Jones Industrial Average (DJIA) recovered early in 1930, only to reverse again, reaching a low point of the great bear market in 1932. The market did not return to pre-1929 levels until late 1954,[2] and was lower at its July 8, 1932 level than it had been since the 1800s.

“Anyone who bought stocks in mid-1929 and held onto them saw most of his adult life pass by before getting back to even."

Timeline

After an amazing five-year run that saw the Dow Jones Industrial Average (DJIA) increase in value fivefold, prices peaked at 381.17 on September 3, 1929. The market then fell sharply for a month, losing 17% of its value on the initial leg down. Prices then recovered more than half of the losses over the next week, only to turn back down immediately afterwards. The decline then accelerated into the so-called "Black Thursday", October 24, 1929. A record number of 12.9 million shares were traded on that day.
At 1 p.m. on Friday, October 25, several leading Wall Street bankers met to find a solution to the panic and chaos on the trading floor. The meeting included Thomas W. Lamont, acting head of Morgan Bank; Albert Wiggin, head of the Chase National Bank; and Charles E. Mitchell, president of the National City Bank. They chose Richard Whitney, vice president of the Exchange, to act on their behalf. With the bankers' financial resources behind him, Whitney placed a bid to purchase a large block of shares in U.S. Steel at a price well above the current market. As amazed traders watched, Whitney then placed similar bids on other "blue chip" stocks. This tactic was similar to a tactic that ended the Panic of 1907, and succeeded in halting the slide that day. In this case, however, the respite was only temporary.
Over the weekend, the events were dramatized by the newspapers across the United States. On Monday, October 28, more investors decided to get out of the market, and the slide continued with a then record loss in the Dow for the day of 13%. The next day, "Black Tuesday", October 29, 1929, 16.4 million shares were traded, a number that broke the record set five days earlier and that was not exceeded until 1969. Author Richard M. Salsman wrote that on October 29—amid rumors that U.S. President Herbert Hoover would not veto the pending Smoot-Hawley Tariff bill—stock prices crashed even further." William C. Durant joined with members of the Rockefeller family and other financial giants to buy large quantities of stocks in order to demonstrate to the public their confidence in the market, but their efforts failed to stop the slide. The DJIA lost another 12% that day. The ticker did not stop running until about 7:45 that evening. The market lost $14 billion in value that day, bringing the loss for the week to $30 billion, ten times more than the annual budget of the federal government, far more than the U.S. had spent in all of World War I.
An interim bottom occurred on November 13, with the Dow closing at 198.6 that day. The market recovered for several months from that point, with the Dow reaching a secondary peak at 294.0 in April 1930. The market embarked on a steady slide in April 1931 that did not end until 1932 when the Dow closed at 41.22 on July 8, concluding a shattering 89% decline from the peak. This was the lowest the stock market had been since the 19th century.
Salsman observed that "As late as April 1942, U.S. stock prices were still 75% below their 1929 peak and would not revisit that level until November 1954—almost a quarter of a century later."

Economic fundamentals

The crash followed a speculative boom that had taken hold in the late 1920s, which had led hundred of thousands of Americans to invest heavily in the stock market, a significant number even borrowing money to buy more stock. By August 1929, brokers were routinely lending small investors more than 2/3 of the face value of the stocks they were buying. Over $8.5 billion was out on loan, more than the entire amount of currency circulating in the U.S. The rising share prices encouraged more people to invest; people hoped the share prices would rise further. Speculation thus fueled further rises and created an economic bubble. The average P/E (price to earnings) ratio of S&P Composite stocks was 32.6 in September 1929, clearly above historical norms. Most economists view this event as the most dramatic in modern economic history.
On October 24, 1929 (with the Dow just past its September 3 peak of 381.17), the market finally turned down, and panic selling started. 12,894,650 shares were traded in a single day as people desperately tried to mitigate the situation. This mass sale was considered a major contributing factor to the Great Depression. Economists and historians, however, frequently differ in their views of the crash's significance in this respect. Some hold that political over-reactions to the crash, such as the passage of the Smoot-Hawley Tariff Act through the U.S. Congress, caused more harm than the crash itself.

Official investigation of the Crash

In 1931, the Pecora Commission was established by the U.S. Senate to study the causes of the crash. The U.S. Congress passed the Glass-Steagall Act in 1933, which mandated a separation between commercial banks, which take deposits and extend loans, and investment banks, which underwrite, issue, and distribute stocks, bonds, and other securities.
After the experience of the 1929 crash, stock markets around the world instituted measures to temporarily suspend trading in the event of rapid declines, claiming that they would prevent such panic sales. The one-day crash of Black Monday, October 19, 1987, however, was even more severe than the crash of 1929, when the Dow Jones Industrial Average fell a full 22.6%. (The markets quickly recovered, posting the largest one-day increase since 1932 only two days later.)

Impact and academic debate

The Wall Street Crash had a major impact on the U.S. and world economy, and it has been the source of intense academic debate—historical, economic and political—from its aftermath until the present day. The crash marked the beginning of widespread and long-lasting consequences for the United States. The main question is: Did the crash cause the depression, or did it merely coincide with the bursting of a credit-inspired economic bubble? The decline in stock prices caused bankruptcies and severe macroeconomic difficulties including business closures, firing of workers and other economic repression measures. The resultant rise of mass unemployment and the depression is seen as a direct result of the crash, though it is by no means the sole event that contributed to the depression; it is usually seen as having the greatest impact on the events that followed. Therefore the Wall Street Crash is widely regarded as signaling the downward economic slide that initiated the Great Depression.
Many academics see the Wall Street Crash of 1929 as part of an historical process that was a part of the new theories of Boom and bust. According to economists such as Joseph Schumpeter and Nikolai Kondratieff the crash was merely a historical event in the continuing process known as Economic cycles. The impact of the crash was merely to increase the speed at which the cycle proceeded to its next level. According to the economist Milton Friedman in Monetary History of the United States in 1963, the Federal Reserve in the immediate aftermath of the crash did not sufficiently expand the money supply and so turned the recession into a depression.

[pieter]

Stock market crash

A stock market crash is a sudden dramatic decline of stock prices across a significant cross-section of a stock market. Crashes are driven by panic as much as by underlying economic factors. They often follow speculative stock market bubbles.
Stock market crashes are social phenomena where external economic events combine with crowd behaviour and psychology in a positive feedback loop where selling by some market participants drives more market participants to sell. Generally speaking, crashes usually occur under the following conditions: a prolonged period of rising stock prices and excessive economic optimism, a market where P/E ratios exceed long-term averages, and extensive use of margin debt and leverage by market participants.
There is no numerically-specific definition of a crash but the term commonly applies to steep double-digit percentage losses in a stock market index over a period of several days. Crashes are often distinguished from bear markets by panic selling and abrupt, dramatic price declines. Bear markets are periods of declining stock market prices that are measured in months or years. While crashes are often associated with bear markets, they do not necessarily go hand in hand. The crash of 1987 for example did not lead to a bear market. Likewise, the Japanese Nikkei bear market of the 1990s occurred over several years without any notable crashes.

[kaima]

The progress of the news seemed to be reported hours earlier in the German press than in the American press, and with more of an international flavor, as we might expect. They happily separated the activities of the American, European and Asian markets. This appears to be a test of the independence of the Asian and European markets from the American market. I hope it proves true; but the experts seem to be waiting to see how it will play out as well. Foreign investments in the US mortgage market seems to be a major international factor.

Pieter,

You posted interesting things on the US stock market crash of 1929. Parts I have read before, parts probably forgotten as well. What do you learn in European school about the Great Depression? Was it sparked by the US crisis or do they describe a number of other mechanisms in Europe as well? Do they even say it was based on primary causes outside the US?

In reading our US history, it is of course, US centered, and I am wondering what the European perspective may be. This is a bit like asking Leslie to describe reasons for the US war of independence - I am looking for differences and similarities in perspective.

Thanks in advance.

Kai
PS. I share your concern. Perhaps it was before your time, but Reagan's wild spending program had me wondering if we or the USSR would collapse first. Happily it was the USSR!

[justjohn]

Is the glass half full or is it half empty.

Now is the time to buy. Wait until the decline has subsided and buy your picks.

;D

[valpomike]

To all,

When the market rebounds, I could be very rich, I hope. I am in for the long term, and will wait and see. I am voting on the U.S.A.
We have this problem in the past, and made it good again, and we will again, soon.

Michael Dabrowski

[kaima]

valpomike said:

To all,

When the market rebounds, I could be very rich, I hope. I am in for the long term, and will wait and see. I am voting on the U.S.A.
We have this problem in the past, and made it good again, and we will again, soon.

Michael Dabrowski

Mike, I wish you steady prosperity for the next 30 years! After that you are on your own.

The he** with my fears of high debt and fears of irresponsible government, I sincerely wish you (and us on your coat tails) all the best!

Kai

[rdywenur]

Just read the reports on the Stock exchange and things don't sound promising and maybe not for a long while. They don't believe that Bush's bandaid will help either for a recovery. Time will tell but hopefully we won't have to wait too long. Good thing about being poor...got nothing to lose.

[valpomike]

rdywenur,

I hope you are correct, and the sooner the better. I want a new Benz, mine is getting near 100,000 miles on it, but I love it, and will give it to my grandson. I will keep working, even if I get rich, since I love my work.
You are not saying that you are poor, are you? Bush's band aid, won't jurt either.

Michael Dabrowski