So much for the green shoots, many economists are now betting on a quick economic recovery and new bull markets in the bourses. Amidst all the green shoots let us examine a few factors that could possibly end up being a factor that affects the recovery.
1.The Oil spike
Crude oil has been surging ever since the talks of economic recovery started doing rounds. Expectations that China will continue to grow at a faster pace and emerging economies will get back to growing ways have lead to the notion that demand for oil will be high. OPEC recently announced that worst of oil crisis may be behind us and expects demand for oil to stabilize and tick up in coming years. Goldman Sachs revised higher its year end target for oil. Also the falling dollar has supported the oil prices. Any further spike in oil prices could end up hurting the prospects of an quick economic recovery.
2. The Swine flu pandemic
WHO raised the flu alert level to six, making it first global pandemic in four decades. Influenza virus typically spread in waves getting stronger with each wave. The second wave that seems to have started has already spread its wings across many nations including India. The World Bank estimated in 2008 that a flu pandemic could cost a damage of $3 trillion to the world trade. Although the swine flu has caused relatively less mortality, any further severity might be a dampener to world trade.
3. Political unrest
Defiant North Korea announced that it will continue to enrich its nuclear capabilities and reportedly is readying itself for a 3rd missile test in spite of UN sanctions and warnings from USA, raising tensions in the region. N Korea has also threatened war if further sanctions were imposed on them. A war is last thing that the world would like to see amidst the financial crisis. In the Middle East, if tensions between Israel and Iran escalate, that would send oil prices soaring again.
4. Rampant inflation
Although not a near term issue, if the economic recovery turns out to be strong and with higher oil prices and monetary easing from central banks around the world, inflation could begin to sky rocket. Higher inflation with stagnant growth will lead to "Stagflation" a period of slow growth with high inflationary pressures.
5. Public debts
Another crisis that looms near the horizon is enormous public debts. Governments around the world borrowed huge amounts of money to steer through the worst financial crisis since the 1930's. It was necessary to save the economy from falling into a deeper hole and to bail out large banks. But in the long run, such enormous debts are unsustainable, already there are worries that some Euro zone nations could default their debts or lose their credit ratings. Unsustainable debts are a cause of worry and needs to be tackled sooner or later.
Prakash
Showing posts with label Articles. Show all posts
Showing posts with label Articles. Show all posts
Financial Crisis - Glossary
Came across this post in bbc.com which explains all the complex jargon's of the Financial world. Useful for laymen to understand the terminologies they across business news pages
The Decopling theory - Revisited
A couple of years ago when the markets were sky rocketing one theory that was doing rounds frequently were the De-coupling theory. Believers of the theory argued that the Emerging Economies including the BRIC (Brazil, Russia, India, and China) nations were beginning to decouple from the Developed world. The argument put forward by them was that the emerging economies were in a different lane of growth driven by local consumption and Inclusive growth. The theory was doing fine until the subprime bubble burst in the US and their economy began to falter.
In 2008 Major economies like US, UK, France, Japan & Germany saw a nose dive in their growth rate as a consequence of Subprime bubble that burst in the US. During the course of the crisis the credit markets froze due to large scale bankruptcies of some investments banks and panic began to spread across the world markets resulting in a big plunge only to prove a point that the world economies were more intertwined than ever before with the troubled banks having their wings spread in investments across the globe. It was the markets of the Emerging economies that took a bigger hit than of developed ones. Brazil and Russia are more of commodity driven markets. As the recession became severe and demand for consumption began to fall, Russian markets took a big knock losing 70% of its value. China and India saw a significant slowdown in their growth rates and huge outflows of investments. After this chaos in 2008 the Decoupling theory was shelved and no one really talked about it thereafter.
Performance of Stock markets in 2008
United States -38%
Japan -42%
France -42%
India -52%
China -65%
Russia -72%
Now after nearly 16 months since the recession began in the US and when there are some signs of a turnaround in the economy the arguments of Decoupling theory is making a comeback. As the Credit markets have eased and the Stimulus packages are showing effects, In the first 3-4 months of 2009 emerging economies like china have began to show some signs of revival of growth, although it would be a bit too optimistic to call it a complete turnaround. The developed world even in optimistic estimates will take a few more quarters to get back to growing ways, however the emerging economies like India & china could stabilize and recover much sooner given that the governments & central banks take proactive measures in the wake any further significant negative macro factors or any big scale bankruptcies of institutions in US or Europe.
From India’s perspective the formation of UPA lead government turned out to be a huge positive, the markets rejoiced with a massive rally. The Government now has an opportunity to hasten the long standing economic reforms which could put India back to its rapid growth trajectory. For now the idea of decoupling theory will live on, however it cannot be concluded that the current uptick in the emerging economies could be sustained forever given the fact how fluid times are. It’s yet to be seen if the recent positive data points or the “Green shoots” are indeed real recovery and not false signals or “weeds” that appear often during prolonged periods of severe recessions.
Sathya Prakash
In 2008 Major economies like US, UK, France, Japan & Germany saw a nose dive in their growth rate as a consequence of Subprime bubble that burst in the US. During the course of the crisis the credit markets froze due to large scale bankruptcies of some investments banks and panic began to spread across the world markets resulting in a big plunge only to prove a point that the world economies were more intertwined than ever before with the troubled banks having their wings spread in investments across the globe. It was the markets of the Emerging economies that took a bigger hit than of developed ones. Brazil and Russia are more of commodity driven markets. As the recession became severe and demand for consumption began to fall, Russian markets took a big knock losing 70% of its value. China and India saw a significant slowdown in their growth rates and huge outflows of investments. After this chaos in 2008 the Decoupling theory was shelved and no one really talked about it thereafter.
Performance of Stock markets in 2008
United States -38%
Japan -42%
France -42%
India -52%
China -65%
Russia -72%
Now after nearly 16 months since the recession began in the US and when there are some signs of a turnaround in the economy the arguments of Decoupling theory is making a comeback. As the Credit markets have eased and the Stimulus packages are showing effects, In the first 3-4 months of 2009 emerging economies like china have began to show some signs of revival of growth, although it would be a bit too optimistic to call it a complete turnaround. The developed world even in optimistic estimates will take a few more quarters to get back to growing ways, however the emerging economies like India & china could stabilize and recover much sooner given that the governments & central banks take proactive measures in the wake any further significant negative macro factors or any big scale bankruptcies of institutions in US or Europe.
From India’s perspective the formation of UPA lead government turned out to be a huge positive, the markets rejoiced with a massive rally. The Government now has an opportunity to hasten the long standing economic reforms which could put India back to its rapid growth trajectory. For now the idea of decoupling theory will live on, however it cannot be concluded that the current uptick in the emerging economies could be sustained forever given the fact how fluid times are. It’s yet to be seen if the recent positive data points or the “Green shoots” are indeed real recovery and not false signals or “weeds” that appear often during prolonged periods of severe recessions.
Sathya Prakash
Jim Rogers Prefers China, Sri Lanka to India for Investment
May 21 (Bloomberg) - China and Sri Lanka are better investment opportunities than India even after the Congress party’s biggest election victory in two decades, investor Jim Rogers said.
India’s benchmark Sensitive Index, or Sensex, jumped a record 17 percent on May 18, causing a trading halt, on speculation Prime Minister Manmohan Singh’s victory will enable him to accelerate economic reforms.
“I’ve heard the same thing for the last 30 years,” Rogers told an Economist Conferences forum in Singapore today, saying he’s skeptical of Singh’s pledges. Still, India will be “the next great investment” if Singh sticks to his commitments, Rogers said.
This week’s gains drove the Sensex to a 42 percent advance for 2009 to date, in line with the Shanghai Composite Index’s 43 percent climb on optimism China’s 4 trillion yuan ($586 billion) stimulus plan will bolster the economy. Sri Lanka’s Colombo All- Share Index jumped to a seven-month high today as the central bank raised its forecast for economic growth following the end of a 26-year civil war.
“You’ve got the wind in your face doing business in India, you’ve got the wind in your back in China,” Rogers said, adding that he sees “great, cheap” opportunities in Sri Lanka because of “dramatic” changes in the country after the end of the war.
More at : bloomberg.com
Green shoots of economic recovery - A macro perspective
Over the last 10 weeks the stock markets have had a phenomenal run up with indices around the world gaining over 30-40% from the lows they made in early march. The rally was triggered by a string of positive news from the US markets & economy termed by Fed chairman Bernanke as the "Green shoots of economic recovery". Some of the leading Indicators that gauge the health of the US economy had shown signs of revival or were slowing down in their rapidity of fall. As all world markets including our Indian markets are following the trend of US & global cues it becomes increasingly important to keep an eye on these developments. Let us first examine the indicators that are showing positive trend.
The Baltic Dry Index:
Baltic dry index is believed to be one of the purest indicators that reflect the state of the world trade. In simple terms it shows the shipping activity happening around the world. So in a way it directly shows the state of of the supply - demand scenario as shipping is the main means of transporting raw materials in global trade.
On 20 May 2008 the index reached its record high level of 11,793 points. Six months later during the height of the economic collapse, on 5 December 2008, the index had dropped by 94%, to 663 points. The index has now recovered and is trading around 2000 levels, which indicates some sort of recovery in the global slump.
LIBOR RATES :
The London Interbank Offered Rate or Libor rate is the rate at which banks lend money to one another. Libor rates give indication of credit flow in the financial system. During the collapse of Lehman Bros the credit markets literally froze and lending almost came to a halt. As central banks around the world took measures to ease liquidity, the libor rates began to thaw. In May the 3 month Libor fell below 1%, clearing signs of credit markets returning to normalcy.
TED SPREADS:
The TED spread is the difference between the 3 month libor rate and 3 month US Treasury bill rate (T-Bills). The TED spread indicates risk and liquidity premiums of the market. During the subprime crisis the TED spread spiked to 150-200 bps. In Sep-Oct 2008, it reached an extreme level of 300-400 bps. Recently the rates have subsided to sub 100 bps levels, again an indication of better liquidity conditions in the markets.
THE VIX (Volatility Index):
The US VIX is widely used as an indicator to judge the market sentiment. It shows the market participants' greed or conviction with the markets. The VIX shot up to 80 levels during the Oct - Nov 2008 when Lehman and AIG were in trouble. Recently the VIX has managed to break below its 200 DMA, signs that market participants are less fearful.
U.S - ECONOMIC INDICATORS:
Some of the economic indicators including the consumer sentiment posted a slight increase in March and improved considerably in April , the index now stood at 39.2 , up from 26.9 in March . A key measure of manufacturing activity, the manufacturing index rose to a reading of 40.1 in April from 36.3 in March , fourth straight gain in last 4 months . Also easing deflationary concerns brought some confidence that the worst of the down turns may be behind us. There is some small revival is US housing markets, but it is too early to call it a reversal of any sort. The recent quarter earnings were better than street expectations and analysts say that the current market levels reflect fair value for the markets.
It is clear that the down turn of the economy is easing and some economists believe that growth would return as early as in the 3rd quarter. According to Federal Reserve estimates they expect the US economy to grow by 2% next year. However there are some contrary signals as well.
Let us have a look at some data that continue to show negative trend.
The US unemployment rate: Recent data shows that the US unemployment rate has shot to 8.9%, highest level in 25 years. The economy is continuing to lose jobs and there are very little signs of easing in the job market. It is expected to hit double digits by end of 2009 or in early 2010. The most recent jobs data shows that jobless claims continue to rise.
Housing starts: Housing starts are down by more than 70% from its peak. The subprime issue started with the housing market and it needs to stabilize for any sustainable recovery.
Auto Industry & Banks: The US auto industry is continuing to collapse, auto sales are down by 40%, large automakers are either bankrupt or at the verge of bankruptcy. The stress test conducted on big banks by the US treasury caused some positive noises, but it appears more likely to be an reverse engineered exercise whose worst case scenario assumptions are more are less existent now itself. Also it needs to be seen if banks can continue to post better results in coming quarters.
Retails sales: Retail sales that comprise of 2/3rd of consumption painted a disappointing picture. The recent retail sales number shows a slip of 0.4% after falling by 1.3% in March.
It is evident that there are some positive signs emerging as the billions of dollars of stimulus money pumped by governments around the world is working its way through the economy. But the question remains whether the recovery could be sustainable. Although for Indian markets the election results came out as a huge positive boost, in terms of macro factors it is advisable to stay cautious once markets surge to higher valuations.
By prakash , Mail : sharemarketidea@yahoo.com
U.S. banking crisis may last until 2013: S&P
(Reuters) - A day after saying big U.S. banks probably needed to raise only one-fourth the capital demanded by the government, Standard & Poor's said the nation's banking crisis has "merely entered a new phase" and might not end before 2013.
The credit rating agency said the industry is being propped up by hundreds of billions of dollars of government support, especially for lenders considered too important to the financial system to fail.
While efforts to spur lending, take bad assets off banks' balance sheets, and restart the market for packaging and selling securities may help the sector, S&P said banks will have a tough time surviving absent a bigger capital cushion than regulators require.
Source : reuters.com
Is the worst of the economic downturn over?
CNN- The worst troughs of the global economic downturn could be over, although there remain risks ahead, according to the man who spearheaded perhaps the most complete study yet of the genesis of the current financial crisis.
Thomas F. Cooley is Dean of the NYU Stern School of Business, which delivered its swift response to the financial turmoil, a collection of 18 papers examining different aspects of the phenomenon, to 100 leading U.S. policymakers, including inside the Obama administration, Congress, the Federal Reserve and financial regulators, bringing an appreciative response.
Thomas F. Cooley is Dean of the NYU Stern School of Business, which delivered its swift response to the financial turmoil, a collection of 18 papers examining different aspects of the phenomenon, to 100 leading U.S. policymakers, including inside the Obama administration, Congress, the Federal Reserve and financial regulators, bringing an appreciative response.
Cooley, who organized the production of the papers by 33 members of the Stern faculty over a period of just six weeks, told CNN he believed that recent sharp rises in stock markets could herald the beginnings of a wider recovery.
"There are distinct signs of a recovery in the U.S. economy, parts of Europe and elsewhere. There is a definite sense that the worst is over," he said. "But there are still many risks in the system, and we need to be cautious in what we evaluate because a lot of the problems aren't being addressed.
"For example, the recovery of the labor markets will be slow, partly because of the effects of monetary policy and the stimulus package."
Cooley organized the finance and economic staff into rapid and coordinated action in November in an attempt to address the what he describes as "clearly the worst financial crisis since the Great Depression."
Continue reading : cnn.com
Krugman says Too Early to call off Depression
Ben Bernanke, the Federal Reserve chairman, sees “green shoots.” President Obama sees “glimmers of hope.” And the stock market has been on a tear.
So is it time to sound the all clear? Here are four reasons to be cautious about the economic outlook.
1. Things are still getting worse. Industrial production just hit a 10-year low. Housing starts remain incredibly weak. Foreclosures, which dipped as mortgage companies waited for details of the Obama administration’s housing plans, are surging again.
The most you can say is that there are scattered signs that things are getting worse more slowly — that the economy isn’t plunging quite as fast as it was. And I do mean scattered: the latest edition of the Beige Book, the Fed’s periodic survey of business conditions, reports that “five of the twelve Districts noted a moderation in the pace of decline.” Whoopee.
2. Some of the good news isn’t convincing. The biggest positive news in recent days has come from banks, which have been announcing surprisingly good earnings. But some of those earnings reports look a little ... funny.
Wells Fargo, for example, announced its best quarterly earnings ever. But a bank’s reported earnings aren’t a hard number, like sales; for example, they depend a lot on the amount the bank sets aside to cover expected future losses on its loans. And some analysts expressed considerable doubt about Wells Fargo’s assumptions, as well as other accounting issues.
Meanwhile, Goldman Sachs announced a huge jump in profits from fourth-quarter 2008 to first-quarter 2009. But as analysts quickly noticed, Goldman changed its definition of “quarter” (in response to a change in its legal status), so that — I kid you not — the month of December, which happened to be a bad one for the bank, disappeared from this comparison.
I don’t want to go overboard here. Maybe the banks really have swung from deep losses to hefty profits in record time. But skepticism comes naturally in this age of Madoff.
Oh, and for those expecting the Treasury Department’s “stress tests” to make everything clear: the White House spokesman, Robert Gibbs, says that “you will see in a systematic and coordinated way the transparency of determining and showing to all involved some of the results of these stress tests.” No, I don’t know what that means, either.
3. There may be other shoes yet to drop. Even in the Great Depression, things didn’t head straight down. There was, in particular, a pause in the plunge about a year and a half in — roughly where we are now. But then came a series of bank failures on both sides of the Atlantic, combined with some disastrous policy moves as countries tried to defend the dying gold standard, and the world economy fell off another cliff.
Can this happen again? Well, commercial real estate is coming apart at the seams, credit card losses are surging and nobody knows yet just how bad things will get in Japan or Eastern Europe. We probably won’t repeat the disaster of 1931, but it’s far from certain that the worst is over.
2009 very dangerous for economy: World Bank chief
World Bank president Robert Zoellick said on Friday that 2009 was turning into "a very dangerous year" for the Global Economy
"2009 is shaping up to be a very dangerous year," he told reporters ahead of Saturday's G20 finance ministers meeting on how best to tackle the worst economic slowdown in decades.
"I believe it will be a positive sign if the G20 supports extended IMF resources, condemns protectionism and supports practical solutions," Zoellick said.
The G20 includes the Group of Seven industrialised countries Britain, Canada, France , Germany, Italy, Japan and the United States , the European Union and leading developing nations including Brazil, China and India.
Finance ministers and central bank leaders from the United States and Europe go into Saturday's meeting deeply divided on whether stimulus packages or tighter regulation of the finance sector should be the way forward.
Saturday's gathering in Horsham, south-west of London, is expected to lay the groundwork for a G20 heads of state summit on April 2.
Thomas Friedman: This Isn't Your Grandma's Recession
Thomas Friedman explains the complexity of the economic crisis, and why the bottom is not in sight
Standard & Poor's cuts GE rating to AA-plus
Standard & Poor's stripped General Electric Co of its top-tier, triple-A credit rating, lowering its rating by one notch to AA-plus with a stable outlook, citing the credit profile of the GE Capital unit. "The main factor in the downgrade was our assessment of the stand-alone credit profile of financial services
unit GE Capital Corp," S&P said in a statement. "We believe that GECC is under increasing earnings pressure, due to recent sharp deterioration in general economic conditions around the globe.
"This will result, in our opinion, in rising credit losses across key segments of its finance portfolio. This is also causing weakening of the value of its real estate holdings and investment securities," S&P said.
S&P lowered its outlook on GE's ratings to "negative" in December. A month later, Moody's Investors Service took a stronger step, putting its ratings on review for possible downgrade.
unit GE Capital Corp," S&P said in a statement. "We believe that GECC is under increasing earnings pressure, due to recent sharp deterioration in general economic conditions around the globe.
"This will result, in our opinion, in rising credit losses across key segments of its finance portfolio. This is also causing weakening of the value of its real estate holdings and investment securities," S&P said.
S&P lowered its outlook on GE's ratings to "negative" in December. A month later, Moody's Investors Service took a stronger step, putting its ratings on review for possible downgrade.
Calling Market bottoms - How Pros went wrong
- 2008 kicks off with legendary prognosticator Abby Joseph Cohen of Goldman Sachs calling for a 14,750 Dow.
- As stocks struggle through the early part of the year, many analysts think the March 17 demise of Bear signals the turning point in the bear market. The Dow closes at 11,972 and a subsequent CNBC.com poll finds more than one-third of respondents embracing the "Bear Stearns bottom."
- On June 20, Merrill Lynch analyst Ed Najarian says bank stocks are in "capitulation mode" suggesting that a full-scale selloff was in the works, well before the worst of the carnage in financials. The Dow closes at 11,842.
- July 8 sees market strategist Byron Wien say the market is in the process of bottoming and will be stronger by year's end. The Dow is at 11,225, a number that looks staggering now. A week previous, CNBC.com asks readers in a poll whether the Dow will finish the year at 10,000, 12,000 or 14,000.
- On Sept. 23, eight days after Lehman's fall, BlackRock's Bob Doll says the worst may be over for the market and signs of capitulation are appearing. The Dow is at 11,015.
- On Oct. 10, Art Hogan of Jefferies calls the renowned "Hogan Bottom" on CNBC. The Dow closes at 8,451 following a stunningly volatile day of trading.
- On Nov. 11 Doll says the "market is going to take time to make a bottom. It's going to be over a period of months." The Dow teeters at 8,854 and is just four days away from making a temporary bottom that lasts until Feb. 19.
World's top 20 richest people: Forbes
Here is a list of the world's 20 richest people, their wealth, businesses or interests, and countries, according to Forbes magazine's 2009 list:
1. Bill Gates, 40 billion dollars. Microsoft, United States.
2. Warren Buffett, 37 billion dollars. Berkshire Hathaway, United States.
3. Carlos slim and family, 35 billion dollars. Telecoms, Mexico.
4. Lawrence Ellison, 22.5 billion dollars. Oracle, United States.
5. Ingvar Kamprad and family, 22 billion dollars. Ikea,sweden.
6. Karl Albrecht, 21.5 billion dollars. Aldi, Germany.
7. Mukesh Ambani, 19.5 billion dollars. Petrochemicals, India.
8. Lakshmi Mittal, 19.3 billion dollars. Steel, India.
9. Theo Albrecht, 18.8 billion dollars. Aldi, Trader Joe's, Germany.
10. Amancio Ortega, 18.3 billion dollars. Zara, Spain.
11. Jim Walton, 17.8 billion dollars. Wal-Mart, United States.
12. Alice Walton, 17.6 billion dollars. Wal-Mart, United States.
12. Christy Walton and family, 17.6 billion dollars. Wal-Mart, United States.
12. S. Robson Walton, 17.6 billion dollars. Wal-Mart, United States.
15. Bernard Arnault, 16.5 billion dollars. LVMH, France.
16. Li Ka-shing, 16.2 billion dollars. Diversified, Hong Kong.
17. Michael Bloomberg, 16 billion dollars. Bloomberg, United States.
18. Stefan Persson, 14.5 billion dollars. Hennes and Mauritz, Sweden.
19. Charles Koch, 14 billion dollars. Manufacturing, energy, United States.
19. David Koch, 14 billion dollars. Manufacturing, energy. United States.
1. Bill Gates, 40 billion dollars. Microsoft, United States.
2. Warren Buffett, 37 billion dollars. Berkshire Hathaway, United States.
3. Carlos slim and family, 35 billion dollars. Telecoms, Mexico.
4. Lawrence Ellison, 22.5 billion dollars. Oracle, United States.
5. Ingvar Kamprad and family, 22 billion dollars. Ikea,sweden.
6. Karl Albrecht, 21.5 billion dollars. Aldi, Germany.
7. Mukesh Ambani, 19.5 billion dollars. Petrochemicals, India.
8. Lakshmi Mittal, 19.3 billion dollars. Steel, India.
9. Theo Albrecht, 18.8 billion dollars. Aldi, Trader Joe's, Germany.
10. Amancio Ortega, 18.3 billion dollars. Zara, Spain.
11. Jim Walton, 17.8 billion dollars. Wal-Mart, United States.
12. Alice Walton, 17.6 billion dollars. Wal-Mart, United States.
12. Christy Walton and family, 17.6 billion dollars. Wal-Mart, United States.
12. S. Robson Walton, 17.6 billion dollars. Wal-Mart, United States.
15. Bernard Arnault, 16.5 billion dollars. LVMH, France.
16. Li Ka-shing, 16.2 billion dollars. Diversified, Hong Kong.
17. Michael Bloomberg, 16 billion dollars. Bloomberg, United States.
18. Stefan Persson, 14.5 billion dollars. Hennes and Mauritz, Sweden.
19. Charles Koch, 14 billion dollars. Manufacturing, energy, United States.
19. David Koch, 14 billion dollars. Manufacturing, energy. United States.
Top Finacial crises in last 100 years
1973 oil crisis
The 1973 oil crisis started on October 15, 1973, when the members of Organization of Arab Petroleum Exporting Countries or the OAPEC (consisting of the Arab members of OPEC plus Egypt and Syria) proclaimed an oil embargo "in response to the U.S. decision to re-supply the Israeli military during the Yom Kippur war. OAPEC declared it would no longer ship oil to the United States and other countries if they supported Israel in the conflict. Independently, the OPEC members agreed to use their leverage over the world price-setting mechanism for oil in order to stabilize their real incomes by raising world oil prices. This action followed several years of steep income declines after the end of Bretton Woods, as well as the recent failure of negotiations with the "Seven Sisters" earlier in the month.
The 1973 "oil price shock", along with the 1973–1974 stock market crash, have been regarded as the first event since the Great Depression to have a persistent economic effect.
The Wall Street Crash of 1929
The 1973 oil crisis started on October 15, 1973, when the members of Organization of Arab Petroleum Exporting Countries or the OAPEC (consisting of the Arab members of OPEC plus Egypt and Syria) proclaimed an oil embargo "in response to the U.S. decision to re-supply the Israeli military during the Yom Kippur war. OAPEC declared it would no longer ship oil to the United States and other countries if they supported Israel in the conflict. Independently, the OPEC members agreed to use their leverage over the world price-setting mechanism for oil in order to stabilize their real incomes by raising world oil prices. This action followed several years of steep income declines after the end of Bretton Woods, as well as the recent failure of negotiations with the "Seven Sisters" earlier in the month.
The 1973 "oil price shock", along with the 1973–1974 stock market crash, have been regarded as the first event since the Great Depression to have a persistent economic effect.
The Wall Street Crash of 1929
The Wall Street Crash of 1929, also known as the Great Crash, was the most devastating stock market crash in the history of the United States, taking into consideration the full extent and longevity of its fallout.
Three phrases—Black Thursday, Black Monday/Tuesday are used to describe this collapse of stock values. All three are appropriate, for the crash was not a one-day affair. The initial crash occurred on Black Thursday (October 24, 1929), but it was the catastrophic downturn of Black Monday and Tuesday (October 28 and October 29, 1929) that precipitated widespread panic and the onset of unprecedented and long-lasting consequences for the United States. The collapse continued for a month.
The Asian Financial Crisis
The Asian Financial Crisis was a period of financial crisis that gripped much of Asia beginning in July 1997, and raised fears of a worldwide economic meltdown (financial contagion).
The crisis started in Thailand with the financial collapse of the Thai baht caused by the decision of the Thai government to float the baht, cutting its peg to the USD, after exhaustive efforts to support it in the face of a severe financial over extension that was in part real estate driven. At the time, Thailand had acquired a burden of foreign debt that made the country effectively bankrupt even before the collapse of its currency. As the crisis spread, most of Southeast Asia and Japan saw slumping currencies, devalued stock markets and other asset prices, and a precipitous rise in private debt.
Black Monday
In financial markets, Black Monday refers to Monday, October 19, 1987, when stock markets around the world crashed, shedding a huge value in a very short time. The crash began in Hong Kong, spread west through international time zones to Europe, hitting the United States after other markets had already declined by a significant margin. The Dow Jones Industrial Average dropped by 508 points to 1739 (22.6%). By the end of October, stock markets in Hong Kong had fallen 45.8%, Australia 41.8%, Spain 31%, the United Kingdom 26.4%, the United States 22.68%, and Canada 22.5%. New Zealand's market was hit especially hard, falling about 60% from its 1987 peak, and taking several years to recover. (The terms Black Monday and Black Tuesday are also applied to October 28 and 29, 1929, which occurred after Black Thursday on October 24, which started the Stock Market Crash of 1929.
The Russian financial crisis
The Russian financial crisis (also called "Ruble crisis") hit Russia on 17 August 1998. It was triggered by the Asian financial crisis, which started in July 1997. During the ensuing decline in world commodity prices, countries heavily dependent on the export of raw materials were among those most severely hit. Petroleum, natural gas, metals, and timber accounted for more than 80% of Russian exports, leaving the country vulnerable to swings in world prices. Oil was also a major source of government tax revenue.
And of course the present Financial crisis which started with the US Subprime will find a top place in the list.
Source :wikipedia.org
Nationalize US Banks says Krugman
The Nobel prize winner for economics Paul Krugman says its better to nationalize US banks before they go to brink of Break Down.
In his column he says " What Alan Greenspan, the former Federal Reserve chairman — and a staunch defender of free markets — actually said was, “It may be necessary to temporarily nationalize some banks in order to facilitate a swift and orderly restructuring.” I agree. "
Read More of his views in his NYT column : http://www.nytimes.com
In his column he says " What Alan Greenspan, the former Federal Reserve chairman — and a staunch defender of free markets — actually said was, “It may be necessary to temporarily nationalize some banks in order to facilitate a swift and orderly restructuring.” I agree. "
Read More of his views in his NYT column : http://www.nytimes.com
What is Recession?
This story is about a man who once upon a time was selling Hotdogs by the roadside. He was illiterate, so he never read newspapers. He was hard of hearing, so he never listened to the radio. His eyes were weak, so he never watched television. But enthusiastically, he sold lots of hotdogs.
He was smart enough to offer some attractive schemes to increase his sales. His sales and profit went up. He ordered more a more raw material and buns and sold more. He recruited more supporting staff to serve more customers. He started offering home deliveries. Eventually he got himself a bigger and better stove. As his business was growing, the son, who had recently graduated from college, joined his father.
Then something strange happened.
The son asked, "Dad, aren't you aware of the great recession that is coming our way?" The father replied, "No, but tell me about it." The son said, "The international situation is terrible. The domestic situation is even worse. We should be prepared for the coming bad times."
The man thought that since his son had been to college, read the papers, listened to the radio and watched TV. He ought to know and his advice should not be taken lightly. So the next day onwards, the father cut down the his raw material order and buns, took down the colourful signboard, removed all the special schemes he was offering to the customers and was no longer as enthusiastic. He reduced his staff strength by giving layoffs. Very soon, fewer and fewer people bothered to stop at his Hotdog stand. And his sales started coming down rapidly and so did the profit. The father said to his son, "Son, you were right". "We are in the middle of a recession and crisis. I am glad you warned me ahead of time."
Moral of the Story: It's all in your MIND! And we actually FUEL this recession much more than we think.
