Thursday, 19 June 2014

Stock market crashes I have lived through

I'm throwing my theories out of the window. Yesterday saw another new high on the S&P. and another upward push on the Dow. All because of the FOMC statement. What was in that statement?

  • good economic news - economy doing well
  • inflation below target
  • further reduction in QE
  • measured reductions in QE for the rest of the year
  • no early interest rate rise
I guess the interest rate guidance was the thing that swung the mood of the market. I also keep forgetting that reduced QE is still QE. The Fed. is still handing the banks $35bn of almost free money per month. Plenty of money to pump into a market where businesses are benefiting from better economic growth, low inflationary pressures, and an easy labor market.

All this leaves me in a serious bind. I pulled out of my last little move into the market in a hurry with minimal losses but after the last time, just days ago, I have nothing invested. GVC has had its run and is now basking at a new high level, waiting for the next bit of good news no doubt. I am frightened of repeating a new foray into the market at a new high level.

News from Iraq continues awful. Yes Saddam was dreadful, but this must be worse for a battered population. News coverage is remarkably subdued. So we have to watch and wait on that one too. And all this time Ukraine simmers in the background.

I'll just watch and wait.

You'll be bored listening to me fretting about the market crashing. But I promise that it happens. And when it does the results are devastating and the thunder clap comes out of a clear blue sky.

Here's a chart to show you what I'm talking about. I admit that the 1929 crash was before my time but I have lived through the other two.

PS I forgot the 1987 crash which literally came from nowhere. It was known as Black Monday. It hit in August and by October the market had lost about 40% of its value. None of the explanations of why that crash occurred makes a lot of sense. What is interesting is that within two months the market has resumed its upward trajectory but it took two years to regain its previous high. Here is a chart to delight you. Ideally an investor would have been in cash when the slide began and bought bargains when the market resumed its rise. Staying in would have cost serious money which would not have been recouped for two years.

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