Stock market crashes imminent?

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WeTheYouth
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Aug 10 2007 11:54
Stock market crashes imminent?

Shares are falling massively across the world you reckon it will end in a crash?

http://news.bbc.co.uk/1/hi/business/6939757.stm

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Tacks
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Aug 10 2007 12:22

explain the economics to an idiot here - the value of shares are falling, which means that they may be sold at a greater and greater pace causing a 'stock market crash'?

And this crash is a wide reaching economic crisis where capitalists/speculators would stop investment and there would be hyperinflation?

i really need to get this shit nailed.

I remember asking my dad what a share was (he was telling someone who suggested he buy shares they were a muppet) when i was 12 and i still can't get over it! A company sells percentages of itself that people can buy as an investment which doesn't pay them anything directly, but the share value might increase and they can sell it on at a profit or something... wtf. Why wouldn't investors just set an increase they wanted like people giving loans do?

Dundee_United
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Aug 10 2007 12:28
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Why wouldn't investors just set an increase they wanted like people giving loans do?

Some effectively do, through various forms of investment funds.

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Khawaga
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Aug 10 2007 13:00

People buy shares as a speculation on future profit (however that might come).

Mike Harman
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Aug 10 2007 13:10

It's just a wobble at the moment, could accelerate a bit, could take out some funds and stuff if they play it wrong. I'd imagine a load of people will shift some money into futures to balance the risk a bit.

Mike Harman
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Aug 10 2007 13:13

http://www.howestreet.com/articles/index.php?article_id=4517
http://www2.skynews.com.au/news/article.aspx?id=183697

john
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Aug 10 2007 14:03

not sure you can call it just a wobble - shares have been rising pretty steadily for the past 6 years (which suggests it might be time for another correction similar to 2001), housing prices have been rising pretty dramatically for about 10 years, which most people are agreed is due to a credit boom which seems at the moment to be unravelling - and the current problem is due to a lack of liquidity in the currency market .

Personally, I think it's a sign of some major imbalances in the global economy, based largely around the unsustainability of the credit-led growth that we've experienced over the last 5 years or so, and that the rapid growth of China and India still isn't reflected in currency values or in consumption patterns in the West.

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AndrewF
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Aug 10 2007 14:08
Tacks wrote:
A company sells percentages of itself that people can buy as an investment which doesn't pay them anything directly, but the share value might increase and they can sell it on at a profit or something... wtf.

Actually this isn't how its meant to work.

Established companies in profit will pay a dividend each year to each share held by a shareholder. What is important in terms of a bubble followed by a crash is that at the start of the bubble that dividend may be a good percentage (10%) of the shares value. But as the bubble develops the shares price rises without the dividend rising by the same amount. So that towards the peak of the bubble the dividend will be a tiny percentage of the value. As the bubble is created by a belief that the value will increase in the future at the top investors are stuck with lots of money in shares that will pay a rate lower than they would get from the post office. So they will want to sell but this will cause the price to drop (being roughly related to demand). Once it starts to drop however if you were in for short term profits you want to sell before it falls far - this means there is strong positive feedback meaning that a bubble that developed over years will collapse in hours, days and weeks.

In dropping however the ratio of dividend to share price will rise so that at the bottom of the crash it once more pays more than the post office and the cycle can start again. This also means that if investors are in the shares for the long haul particular peaks and troughs may not be relevant until the point they intend to sell.

It is however also worth noting that your description is right of some companies like the internet start ups of the 90's who never made a profit or paid a dividend and whose share value was based on imagined future dividends and short term speculation on the value of the share itself. Most of such companies went bust which meant the investors lost everything but a few like Amazon did get established.

Marshall
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Aug 10 2007 14:45

It's hard to say whether there will be a slump per se. Last year, about 18 months ago, about 80% was wiped off the value of stock markets in the UAE, Kuwait, Bahrain and Saudi Arabia, but no-one would say that there had been a recession in the Gulf!

In fact, Saudi has one of the worst performing stock markets in the world, but its economy is booming (thanks to oil). So, stocks aren't necessarily a sign of a slump, more an indicator of a general mood. But an indicator nevertheless

And put it this way - a few percentage points have been wiped off stocks in the past week, but the averages are historcially high, so there is more give in the economy. That is, it has been doing so well, so incredulously, unfathomably well, that a sharp decline would be more like "back to normal" after the binge of the last five years. At least that's one story...

More interesting, and I guess this has already been discussed, are the credit markets. There are potentially hundreds of billions of dollars that could be wiped out of the credit system because of non-performaing loans.

What is so troubling about this time around is how entrenched the selling on of these packages of loans (called in the trade "collateralised debt obligations") has become. Pension funds, hedge funds, banks, etc., have all been exposed. It is only just beginning to unravel how extensive it is.

What the overall impact will be it is too soon to say.

baboon
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Aug 10 2007 15:18

Joseph K started this discussion about 3 weeks ago under US credit crunch. There was also a similar discussion about the same time on Foreclosures. Both on 'News'.
The bourgeoisie are whistling in the dark. First of all it was supposed to be a problem of the "sub-prime" mortgage lending market peculiar to the US and was posed in all the financial pages in these terms. It was always much more serious than that and indicative of fundamental problems of state capitalism. Without the massive extension of credit - at all levels of the economy - capitalism would collapse. The response of state capitalism over the last ten or so years has been to facilitate credit in order to prop up its system. It's a palliative, a measure to cure the sickness of overproduction, but given in the doses it has been given it turns into a poison. Forget about the stock market for trying to understand capitalism - that's just a casino, a sideline. Once you start seeing banks, big banks, affected in Germany, Japan, the US, then you know that there is a fundamental problem.
On the two threads mentioned above, and on other previous threads roughly related to this subject, the idea comes up again and again that capitalism can simply go into more and more debt, that it can solve its crises "at the stroke of a pen", that's its a system that is eternal and everlasting. Such jackass ideas are being demonstrated for what they are - idealistic blind faith. This is not a "wobble" and things will not go "back to normal" (whatever that was) but a fundamental indication of the fragility and weakness of capitalism. Since the 1930s and 40s the bourgeoisie worldwide has used state capitalist measures of one means or another in order to try to keep its system afloat. The timescale of its sinking, the exhaustion of its state capitalist measures is unknown, but what's happening in all the financial sectors and services today is an important indication of the increasingly limited ability of the bourgeoisie to keep its system going by the massive extension of credit.
It is also important to bear in mind that, certainly hundreds of thousands, possibly millions of workers are going to lose their homes and still be lumbered with life time debts. That, whatever happens, the working class will be forced to pay one way or the other.

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Lazy Riser
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Aug 10 2007 15:32
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that it can solve its crises "at the stroke of a pen"

The point being it's not "its crises". It's yours.

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Lazy Riser
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Aug 10 2007 15:40
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My portfolio just took a right shafting!

Ha ha. Hard luck comrade. I disinvested a while back, I'll be looking to pick up some choice assets when this thing bottoms out.

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Lazy Riser
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Aug 10 2007 15:57

My heart is as close to bleeding as my sociopathic disorder allows. When I finish a few little jobs I’ve got on, I intend to develop a stochastic spread betting system. When it is tested, I will share it with you.

Catch 22
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Aug 10 2007 19:11

I'm more worried about the the US economy. The sub prime loan market is collapsing like an overburdened camel. Every week there's a new lender going under and a new rash of forclosures. This isn't good when most of our economic "growth" has been predicated on the housing boom. More importantly this is a great danger to working people who took up sub prime mortgages in order to finally own a house. Folks are getting foreclosed on left and right, while wages continue to stagnate in the face of massive consumer debt and rising oil prices. You're fucking screwed if you're foreclosed on these days.

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Lazy Riser
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Aug 10 2007 20:31

Well it's what we must have wanted one way or another. We've no-one to blame but ourselves. It's not like we weren't warned.

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jef costello
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Aug 10 2007 22:16

With sub prime the lender makes back the capital fairly quickly due to the high interest and then makes back any remainder by seeling the repossessed property. So they don't lose, seems more like an extraction of capital from the working and middle classes to me.

A correction in the stock market can be lived with. Same with the housing market. Basically a crash in the US housing market will bring everything down, so it will not be allowed to happen. Same is true in the UK.

Catch 22
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Aug 10 2007 23:55
jef costello wrote:
With sub prime the lender makes back the capital fairly quickly due to the high interest and then makes back any remainder by seeling the repossessed property. So they don't lose, seems more like an extraction of capital from the working and middle classes to me.

A correction in the stock market can be lived with. Same with the housing market. Basically a crash in the US housing market will bring everything down, so it will not be allowed to happen. Same is true in the UK.

That's what the sub prime lenders thought. Though its not working anymore becuase the housing market is so full of foreclosures that its driving housing prices down. Thus they can't make back what they're making. Which is why Bear stearns now has 2 worthless hedge funds, American home mortgage went bankrupt and fired 15 hundred people, delta financial suddenly postponed earnings statements and the central European banks dumped mortgage bonds yesterday.

I'm not exactly sure how a housing crash is "won't be allowed to happen." Where is the capital to do that? Oil is gonna shoot past 80 bucks a barrel, consumer spending has already slowed, and consumer credit is already leveraged to the hilt. The government is the only place you could find a mass capital infusion and we're already half a trillion in deficit. The amount required for a subprime bailout could be so massive that it could do harm than good, devaluing the dollar and ushering in stagflation. I'm probably overly pessimistic, but the situation ain't good. We just had a "recovery" where massive productivity gains begat negative wage gains. I can only imagine what's going to happen in a full on recession.

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Demogorgon303
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Aug 11 2007 10:15

Proper credit crunches are rarer than simple stock market downturns. The last major credit crunch happened in 73-74, triggering a decade of stagflation and international economic crisis. The CFO of Bear Stearns (two of their funds collapsed last week) talked about the "worst conditions in 22 years". Other funds have already been suspended and a small German bank which had purchased large quantities of sub-prime debt is threatened with collapse.

The danger of a true credit crunch is that it can affect companies regardless of their health. Today, even "robust" companies need a permanent stream of credit to smooth their finances and if this dries up then there will be blood on the carpets all over the global economy. Today, most economic actors are far more leveraged than they were back then which suggests the evolution of a far worse crisis - conversely, state intervention is also far more developed which will attenuate some of the worst effects of the crisis but only at the price of putting off the evil day.

The real question now is how effectively the bourgeoisie's response to the crisis can be. The central banks world-wide have already poured billions into the credit markets (equivalent to a 1/4 of Britains annual GDP by some accounts) in the last two days and there is undoubtedly more to come.

john
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Aug 11 2007 13:48
jef costello wrote:
Basically a crash in the US housing market will bring everything down, so it will not be allowed to happen. Same is true in the UK.

if recessions could always be avoided, then surely they would be?

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Lazy Riser
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Aug 11 2007 15:38
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if recessions could always be avoided, then surely they would be?

Not by the logic of collective action they wouldn't. Groups don't necessarily act in the interests of their members, especially large groups providing public goods like “stopping recessions”.

john
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Aug 11 2007 15:52
Lazy Riser wrote:
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if recessions could always be avoided, then surely they would be?

Not by the logic of collective action they wouldn't. Groups don't necessarily act in the interests of their members, especially large groups providing public goods like “stopping recessions”.

that's true - but that's one reason why recessions can't always be avoided - it's not an example of the capacity to prevent recession existing, but nevertheless not being acted upon.

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Lazy Riser
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Aug 11 2007 16:11

It is, as it happens. Either way, we have the capacity to prevent it but we choose not to because we love the thrill of capitalist competition, in the same way as we drive fast and risk lives because we love the thrill of racing.

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jef costello
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Aug 12 2007 07:23
revol68 wrote:
I just look at ti as a more mundane, secure form of gambling, well I did until the other day. angry

Don't worry revol, if you can wait for a while it'll get its value back.

bbbbb
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Aug 12 2007 12:59

I don't think there will be a stockmarket crash this week either, or even a severe correction. (Crash defined as a fall of 20% in a day or a few days, as happened in 1929 and 1987, but not in 2001; severe correction as a fall of 15% or more over a period of months). Late August is the traditional time for city boys to take profits by selling a proportion of whatever they hold that's gone up in paper value, and also to get their bonuses sorted out. A million ain't that big a bonus in the City.

Not that the above explains the whole of what's happening.

For sure, the amount of money the central banks have put up to defend the credit system is big - about a third of a trillion (sic) US dollars, taking both sides of the Atlantic into account. But they created the credit set-up in the first place. Much of it is probably due to the fact that they've got everyone in such a fucking tight strangle-hold, getting ever tighter and tighter, that they were drunk with their own extreme success.

That said, the big boys make money when stock prices go down as well as when they go up.

Someone mentioned house prices. There won't be a huge drop in these prices in the UK, Ireland, or even in Poland. What will happen is huge numbers of people (maybe millions) being taken to court for non-repayment, and ending up having to take two jobs to pay off the banker scum. Growth in prostitution, crime, etc., to get the income to pay the moneylending filth off. It's similar to going back to the extraction of absolute surplus value.

Another element that needs to be watched is the fact that stockmarkets themselves are being taken over. The London one bought the Italian one, and Dubai-based interests are not only thinking of buying the Scandinavian one, but they are also thinking of playing a role in setting up a combined European one. No shit! Finance capital roolz!

bbbb

bbbbb
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Aug 12 2007 16:20
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The central banks world-wide have already poured billions into the credit markets (equivalent to a 1/4 of Britains annual GDP by some accounts) in the last two days and there is undoubtedly more to come.

Yes - 300 billion dollars and rising - an awful lot of money. If I were a stripy-suited one, I'd be speculating like mad on rising interest rates. When they say they're doing their best to defend x, it means x is weak (currency being a classic case) and that's a signal to speculate on bringing it down. Which in the crazy logic of finance capital makes it more likely that it will come down. Where they'll borrow funds from to speculate with is another matter but in the financial markets there are instruments for pretty much anything.

This isn't a "crisis" though!

bbbbb

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Aug 13 2007 14:36

Apparently now the worst is behind us!

The anatomy of this crisis (at least as presented by the bourgeois media) could be characterised as follows:

- Finance companies have loaned out huge wodges of dosh to some rather dodgy customers. They then sold these dodgy debts to finance firms around the world. Unfortunately, because of the lack of transparency behind these CDOs, no-one really knew how dodgy the debt was or who held it. This was fine as long customers kept paying the bills

- Suddenly people stop paying the bills and the debts are defaulted on! Finance firms around the world suddenly realise all this debt that was making them money is worth shit and begin to lock down funds, etc. No-one is really sure who's in danger so panic spreads because no-one knows where to put their money. A credit crunch looms.

- The world's central banks, demonstrating their commitment to the free market, step up to the line saying, "we know you're in a panic but we can assure you that whatever happens the rivers of money will keep flowing, to prove we mean what we say, here's a $300 billion loan to keep you going through this tough patch"

- Coupon clippers everywhere breathe a sigh of relief - there won't be a credit crunch because the central banks will keep pumping it into the system. I can afford to loan out my money after all. Lending resumes and the credit crunch risk recedes. Risk is revalued, the markets correct themselves and everything is right with the world.

Note how the actual problem of the dodgy loans themselves has not been solved. Note also that the loans doled out by the central banks also have to repaid back by finance houses. As a matter of interest, this injection of funds amounts to a 2% increase in the broad money supply in US and Eurozone which will reduce the room for manouvre of the central banks in reducing interest rates because of inflation fears.

This shows in a microcosm how state capitalism confronts economic crisis, counteracting the symptoms but unable to ever confront the underlying cause. Also, the methods that it employs can actually add to the underlying causes (in this case vast amounts of debt that will never paid off) and cause problems elsewhere. The enormous flexibility and determination of the bourgeoisie is clear - only a complete meltdown would reproduce a "natural" crisis like that of 1929 again. However, it is equally clear that the crisis cannot be truly resolved by any of these efforts, even if its pace can be slowed down and the worst effects limited to the weaker sectors of the economy. But, in the long term, the crisis deepens despite all these efforts driving the bourgeoisie to ever more desperate economic alchemy and more and more savage attacks on the working class.

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georgestapleton
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Aug 13 2007 14:48
JoeBlack2 wrote:
It is however also worth noting that your description is right of some companies like the internet start ups of the 90's who never made a profit or paid a dividend and whose share value was based on imagined future dividends and short term speculation on the value of the share itself. Most of such companies went bust which meant the investors lost everything but a few like Amazon did get established.

Not just small internet start ups. Microsoft and Ryanair have never paid out dividends. Their shares are bought and sold purely for equitable gains.

revol68 wrote:
Lazy Riser wrote:
Yeah Tacks, anyone without investments is a lfestylist as far as I'm concerned. Apart from gamblers, they're alright.

I just look at ti as a more mundane, secure form of gambling, well I did until the other day. angry

The funny thing is you honestly don't sem to be aware how important this is to most working class people in Anglophone countries.

If there is a major crash people will lose their pensions and people will lose their homes. But hey who cares about that what is important is understanding 'principles' and fucking Zizek. roll eyes

fruitloop
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Aug 13 2007 15:26

Up to and including homlessness?

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Lazy Riser
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Aug 13 2007 15:57
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Up to and including homlessness?

For def. I know plenty of blokes who'd happily jettison their 2-up-2-down familial duty in return for a skanky bedsit and bit of sexy slap and tickle. It's only because the old ball and chain would take them for half their assets and earnings that they put up with it. Bankruptcy and destitution are the best things that can happen to some people, they finally get to do all the stuff their wives never let them.

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georgestapleton
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Aug 13 2007 17:14

Oh come on you don't have a share portfolio. It'd be funny if you did, but you don't.

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MJ
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Aug 13 2007 19:22

Capitalist.