In Part 1 a whole bunch of large numbers were mentioned. Before we analyze what they mean, maybe we need some definitions:
Derivatives: a generic term for a variety of financial mechanisms involving a promise to convey ownership of an asset, rather than the asset itself. Futures and options are two common derivatives. Warren Buffet called derivatives financial weapons of mass destruction. The Brookings Institution reported on “The Dangers of Derivatives.”
Hedge Funds: a private investment fund, while regulated, allows a wider range of activities, providing the investment manager a performance fee. Think Bernard Madoff.
TARP: troubled assets relief program, the Emergency Economic Stabilization Act of 2008, providing $700 billion to the Department of Treasury. Now that the second $350 billion has been approved by Congress, we are on to the 2009 version, whatever it will be called, said to be worth $825 billion, $550 billion for emergency spending and $275 billion in temporary tax benefits over the next two years.
During this time of fickle oil prices and a volatile stock market, it seems appropriate to talk about major crashes, which in the past were triggered by bank failures and gold standard adjustments, and more recently further influenced by the price of oil. In October 29, there was Black Thursday (24), Black Monday (28) and Black Tuesday (29). On 8July1932 the Dow plunged to 41.22, erasing 36 years of gains, and would take 22 years to surpass its previous high.
The DJI reached 1000 in 1972 but in the 694 days between 11January73 and 6December74, the DJI fell 45%, slightly more than the world average, with the London stock exchange dropping 73% of value. In 1987 the DJI passed 2000 and for no discernable reason (thus, it was called the Black Swan event), another Black Monday occurred on 19October87 when the DJI fell 22.6%.
The DJI reached 3000 in 1991, 6000 in 1996, 8000 in 1997 (thus we are back to where we were a dozen years ago), 10,000 in 1999, 12,000 in 2006 and hit 14,165 on October 9, 2007. Thus, over the past 16 months, the DJI has dropped about 44%.
Some have predicted that we are only in the beginning of the ultimate depression, which in minimal fashion occurred as recently as the 1990’s with the breakup of the Soviet Union, where their Gross Domestic Product declined by 45% and poverty in the region increased ten-fold. These so-called doomsdayers are preparing for much more severe lifestyle adjustments with the end of cheap oil, influencing some to begin the process of converting to transitional living based on group sustainability with protective defense capabilities. But, certainly, this group represents a minority viewpoint. But could they be right?
Derivatives: a generic term for a variety of financial mechanisms involving a promise to convey ownership of an asset, rather than the asset itself. Futures and options are two common derivatives. Warren Buffet called derivatives financial weapons of mass destruction. The Brookings Institution reported on “The Dangers of Derivatives.”
Hedge Funds: a private investment fund, while regulated, allows a wider range of activities, providing the investment manager a performance fee. Think Bernard Madoff.
TARP: troubled assets relief program, the Emergency Economic Stabilization Act of 2008, providing $700 billion to the Department of Treasury. Now that the second $350 billion has been approved by Congress, we are on to the 2009 version, whatever it will be called, said to be worth $825 billion, $550 billion for emergency spending and $275 billion in temporary tax benefits over the next two years.
During this time of fickle oil prices and a volatile stock market, it seems appropriate to talk about major crashes, which in the past were triggered by bank failures and gold standard adjustments, and more recently further influenced by the price of oil. In October 29, there was Black Thursday (24), Black Monday (28) and Black Tuesday (29). On 8July1932 the Dow plunged to 41.22, erasing 36 years of gains, and would take 22 years to surpass its previous high.
The DJI reached 1000 in 1972 but in the 694 days between 11January73 and 6December74, the DJI fell 45%, slightly more than the world average, with the London stock exchange dropping 73% of value. In 1987 the DJI passed 2000 and for no discernable reason (thus, it was called the Black Swan event), another Black Monday occurred on 19October87 when the DJI fell 22.6%.
The DJI reached 3000 in 1991, 6000 in 1996, 8000 in 1997 (thus we are back to where we were a dozen years ago), 10,000 in 1999, 12,000 in 2006 and hit 14,165 on October 9, 2007. Thus, over the past 16 months, the DJI has dropped about 44%.
Some have predicted that we are only in the beginning of the ultimate depression, which in minimal fashion occurred as recently as the 1990’s with the breakup of the Soviet Union, where their Gross Domestic Product declined by 45% and poverty in the region increased ten-fold. These so-called doomsdayers are preparing for much more severe lifestyle adjustments with the end of cheap oil, influencing some to begin the process of converting to transitional living based on group sustainability with protective defense capabilities. But, certainly, this group represents a minority viewpoint. But could they be right?
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The Dow Jones Industrials dropped almost 300 points, but recovered to only minus 105 to 8123. World markets mostly dropped. Crude oil slipped about a buck to $43.04/barrel. Gold rose $3.20/toz to $856.40.
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