Why did market crash last monday?

Z

z106

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WHy did the market crash last monday?

Now - i lnow about subprime and all the rest of it.

But my question is why did it crash last monday specifically?

Why didn't it crash the friday before for example?

WHat specific event occurred between friday and monday to trigger the crash?
 
crowd psychology. one big instituional investor bails out and the rest panic and follow
 
coola said:
crowd psychology. one big instituional investor bails out and the rest panic and follow
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WHich big institutional bailed out?

And why did they decide to do it monday as opposed to friday?
 
I think there were a number of reasons. Economic data out of the states was very weak at the end of last weak. There was concern about bond insurers credit quality in the US and the risk that they would lose their AAA rating (one did). This would of had a disasterous impact on the municipal bond market in the States never mind the wider credit markets. China is showing signs of slowing albeit from extreme highs on the back of weakening US consumer spending. India had some bad news with regard to the IT services industry. I think the Asian markets looked at everything on Monday and decided the US was heading for or was in a recession. This led to a sell of in Asia which of course was followed by a sell off in Europe. The US was also closed on the Monday as well so there was little direction for the markets.

Or someone pressed the sell button instead of the buy button and started the crisis!!
 
coola said:
crowd psychology. one big instituional investor bails out and the rest panic and follow
Click to expand...
quite right,they call them the herd,at the mere touch of a button trillions of dollars/euro can be moved out of one country and into another.when a herd of wilderbeest are spooked by a lion they dont just run down to the end of a grazing,they run to a different country
 
i have no idea why institution, it dosent matter. all it needs is one to move and the rest follow. just like they are all following today again. a lot of institutional investors have insider knowledge i.e. they might have known that apple were going to fall short of estimates and bailed out of all stocks
 
US markets were closed Monday - I think that had a lot do with the actual timing of it.
 
the fact that the US gapped down tuesday and yesterday and finished higher is a very positive sign by the way.if FED cut again next week, then markets will assume that everything will be ok 6 months from now
 
Why did the market on (i don't know the exact date) in 1929, nobody knows, many academics have done studies on this , chaos theory, the markets are basicaly the same as ants, starlings etc
 
nobody knows ... the markets are basicaly the same as ants, starlings etc
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Couldn't agree more. Automated trading systems and index trackers exacerbate random fluctuations. Humans like to find meaning and patterns in stochastic systems, but that doesn't mean we should rely on the post hoc explanations of "analysts".
 
One interesting and plausible theory, is baby boomers in america, the largest and wealthiest population group are cashing in on their investments.
76 million americans born between 1946 and 1964. Markets benefited from their investments, next few years they will be retiring which means their portfolios will have to be liquidated. Stocks will fall for many years as baby boomers cash in their chips, it could be happening already. Older people have more money.
 
I've heard a suggestion that the catalyst for Monday's crash (and the Fed's rate cut !!) was the rumour surrounding a major loss at Societe Generale, thought at the time to be subprime related, but now we know was due to the activities of one M. Kerviel !!

Wouldn't it be funny if the Feds hand was forced by a single rogue trader in France?
 
next few years they will be retiring which means their portfolios will have to be liquidated
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If I liquidate my pension fund to buy an annuity, where do they put the lump sum I give them in return for the annuity?
 
MugsGame said:
If I liquidate my pension fund to buy an annuity, where do they put the lump sum I give them in return for the annuity?
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Bonds of various lengths, or on deposit. Some will still keep a proportion in stocks.
 
Markjbloggs said:
I've heard a suggestion that the catalyst for Monday's crash (and the Fed's rate cut !!) was the rumour surrounding a major loss at Societe Generale, thought at the time to be subprime related, but now we know was due to the activities of one M. Kerviel !!
Click to expand...
Markjbloggs said:
Wouldn't it be funny if the Feds hand was forced by a single rogue trader in France?
Click to expand...

The markets crashed because US bonds markets are in a complete fix and the 2.3trillion USD market needs a bail out. This will make Northern Rock look like kindergarten stuff. Societe Generales rogue trader is a smoke screen and many journalists smell a rat. For an idea of what's happening peruse either of these articles

http://www.marketwatch.com/news/story/bond-insurers-fall-ny-regulator/story.aspx?guid=%7B01CB4863%2DFACD%2D41A7%2DAFA9%2D872DA2B3B97D%7D&dist=hplatest
"Bond insurers fell Thursday after New York's top insurance regulator sounded a cautious note on any bailout of the ailing $2.3 trillion industry. Security Capital Assurance was the worst hit after the bond insurer lost its AAA rating from Fitch Ratings. New York Insurance Superintendent Eric Dinallo issued cautious remarks Thursday on the possibility of a bond-insurer bailout, saying that any plan would be complex and take time".

http://www.larouchepac.com/news/2008/01/24/nobody-believes-lone-lone-trader-brought-down-frances-second.html
"Nobody Believes That a "Lone Trader" Brought Down France's Second-Largest Bank"

http://www.nytimes.com/2008/01/24/us/24mayors.html
It’s an economic tsunami that is hitting our cities,” said Mayor Douglas H. Palmer of Trenton, the president of the conference. “We need federal action not six months from now, but within the next 30 days.”

Expect more fallout.
 
The SocGen rumours that I've been reading (mostly on FT Alphaville) are that the unwinding of the 40 billion of euro futures meant that SocGen were selling then Monday-Wednesday and thus putting downward pressure on the Cac and Dax futures on those days. It doesn't quite explain why the emerging markets took fright - in particular China and India. My guess would be fear of a US recession is a bigger driver in world markets, while fear of a cascading monoline insurance failure is driving weakness in the financials.

Edit: crossed with MichaelDes
 
If SocGen were responsable for the down on Mon-Wed then I think the regulators need to ask some questions on who knew what and when and look closely at what information was given to the markets. SocGen shares are traded in London, Frankfurt and Euronext so lots of regulatory rules exist regarding divulgation of market sensitive information.

Although as it was a French bank, I'd guess that the French regulators won't be asking too many hard questions. Perhaps the EU / ECB needs to look into this.
 
Yeah - SoGen taking the rap sounds all too easy. We're not out of this by a long shot. Wait till Mid Feb when the banks publish their reports..I don't think the news will be good. Tuesday was a mini bull in the middle of a bear. Whether it's a sharp nasty bear or a slow gradual bear...Heaven knows....
 
Elphaba said:
One interesting and plausible theory, is baby boomers in america, the largest and wealthiest population group are cashing in on their investments.
76 million americans born between 1946 and 1964. Markets benefited from their investments, next few years they will be retiring which means their portfolios will have to be liquidated. Stocks will fall for many years as baby boomers cash in their chips, it could be happening already. Older people have more money.
Click to expand...

Well if that is the case it will be bad long term for america because if they are going to all cash out en masse who will buy their stocks , the chinese and indians with bucket loads of dollars would only be too willing to buy quality american stocks, maybe the baby boomers will be ok but it will exacerbate the trend where more and more american assets are foreign owned. This has long been issue that warren buffet has been warning about. This is also not exclusive to america the same could happen in ireland where the public here is the same as the over indebted americans, who will buy the quality irish stocks when they get cheap enough probably foreigners
 
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