October 30, 2008
How far down can world markets go?
A little background reading about falling markets and suggests that average falls are pretty big. Of course, as we all keep reading, the current situation is ‘unprecedented’ and ‘impossible to predict’. That is all well and good, but what about previous down markets, how big were they?
the 1929 to July 1932 period saw the US index lose 90% of it’s value. It seems that during the ‘average’ bear market, share prices will lose approximately half of their value. This would be serious in normal times, but these are ‘unprecedented’ times.
So how far down will they go? Of course, your author has no idea. And massive amounts have been wiped from market values already, but it seems that markets are only just waking up to the idea of recession. Who knows how they missed it?
Taking values down because of a recession and inflation after the turmoil of a credit crunch could be catastrophic. This would not be confined to banking or investment firms, but all aspects of the economy. No company would be safe and no government could intervene forever.
Could the EU have a coordinated approach? Would such a thing work? And how could the EU oversee such a free-for-all when each member state would be intent on saving their own major firms first and worrying about Europe second (or third)?financialguy