Australian (ASX) Stock Market Forum

The probability of a 1987 style crash

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Hi Money Tree,
Thanks for the interesting article. When the 1987 crash happened I was in Hong Kong losing my pants as a novice punter. But your article reminded me of the two events that happened in HK at that time that make me think the Americans have pinched the ideas from HK:
1) the then HK stock exchange boss Ronald Li anounced that the HK stock market should stop trading for a couple of days for people to cool down. It did stop trading for a few days but fell just as much afterward. He lost his job. And the Americans now call it Circuit Breaker, pioneered by Mr. Li.
2) the Hong Kong Goverment subsequently bought a huge amount of cheap shares because with their surplus finance they could afford it. I think that did work, they stabilised the market and made profit by selling back the shares a few years down the track. The Americans now call it PPT.
So these are not original ideas.
Cheers.
 
toothfairy said:
When the 1987 crash happened I was in Hong Kong losing my pants as a novice punter.
Click to expand...

So you weren't investing in the markets at that stage then??

Sorry, couldn't resist :)
 
theasxgorilla said:
So you weren't investing in the markets at that stage then??

Sorry, couldn't resist :)
Click to expand...
Lucky after that I invested with what I got left into their property market and bought an appartment in mid-level and that went double in three years. :)
 
nizar said:
Exactly.
When i read the thread topic i was going to say the same thing.

In the 12 months before October 1987 the XAO appreciated 88%. In the 12 months until now the XAO appreciated about 20%. BIG DIFFERENCE.

I dont even understand how those "Analysts" can compare it.
Click to expand...

PE's were higher then too I believe.
 
nizar said:
Exactly.
When i read the thread topic i was going to say the same thing.

In the 12 months before October 1987 the XAO appreciated 88%. In the 12 months until now the XAO appreciated about 20%. BIG DIFFERENCE.

I dont even understand how those "Analysts" can compare it.
Click to expand...

Nizar, correct me if I'm wrong, but the amount in dollars to gain the next 1% in todays market is a lot more than the same dollar amount to move 1% in the 1987 market. So comparing in percentage terms is a bit misleading. I would assume you would have to adjust for inflation as well?. Does that sound right?

As for a full blown crash, in both of the famous crashes eg 1929 & 1987, the initial corrections only preceded the actual crash by some weeks.

Why is it different this time - because no amount of market controls will be able to control the amplification effect of derivatives being unwound or exited. Unfortunately, these derivatives are so entwined & massive that a domino effect will most likely occur spreading to every financial nook & cranny.
I hope I'm wrong, but be prepared anyway :(

Perhaps the topic should be "The probability of a 1929 style crash'?
 
I have entered values, I have daily data on the DOW back to 1895.
If Monday does not rally, the CRASH protection team better be out Tuesday as some figures I entered for a small down day Monday and if Tuesday is going to be down it will be giving similar readings to 1987
 
money tree said:
also, when the PPT puts curbs in, it becomes illegal to short a stock on a downtick.
Click to expand...
serious!?! sheesh.
This one has no doubt been posted elsewhere already ....
http://www.abc.net.au/news/newsitems/200703/s1862045.htm
Dow Jones continues to slide
The US stock market has suffered another big fall, with investors still skittish about the strength of that nation's economy. The Dow Jones industrial average is down by more than 100 points, as a tumultuous week on world financial markets draws to a close.

The Dow began the day in positive territory, but was soon diving on renewed concerns about the state of the US economy. A key consumer sentiment index came in much weaker than expected and this only contributed to the general nervousness.

The market also reacted badly to a warning by investment guru, Warren Buffet, that Americans were taking on too much personal debt. Fears about the economy helped trigger the dramatic plunge on Wall Street earlier this week, when the Dow Jones lost more than 400 points in one day.
Click to expand...
 
toothfairy said:
When the 1987 crash happened I was in Hong Kong losing my pants as a novice punter. But your article reminded me of the two events that happened in HK at that time that make me think the Americans have pinched the ideas from HK:
1) the then HK stock exchange boss Ronald Li anounced that the HK stock market should stop trading for a couple of days for people to cool down. It did stop trading for a few days but fell just as much afterward. He lost his job. And the Americans now call it Circuit Breaker, pioneered by Mr. Li.
2) the Hong Kong Goverment subsequently bought a huge amount of cheap shares because with their surplus finance they could afford it. I think that did work, they stabilised the market and made profit by selling back the shares a few years down the track. The Americans now call it PPT.
So these are not original ideas.
Cheers.
Click to expand...
Toothfairy - I recall watching him (Li) being interviewed on TV during Asian downturn and HK stock market problems. As I recall he took great offence at the suggestion he had tipped off "mates " etc. - He was threatening to sue any news reporter who even questioned him on a matter even approaching his integrity ( I think I have it right, you may recall better) - only to be caught out by the ICAC lol. Not sure if he was charged etc

I always thought that some of those Asian stock markets were built on such unstable sand - companies being listed who had no expertise whatsoever in their alleged area of specialty - (maybe others can comment). Seems that Shanghai is a bit more honest at least, even if a bit wobbly. (and current day Asian markets maybe?)
 
nizar said:
Exactly.
When i read the thread topic i was going to say the same thing.

In the 12 months before October 1987 the XAO appreciated 88%. In the 12 months until now the XAO appreciated about 20%. BIG DIFFERENCE.

I dont even understand how those "Analysts" can compare it.
Click to expand...

It sells news papers Nizar
 
Why the fixation with 1987? From what I have read elsewhere, 1987 pales in comparison with 1972 to 1974. The bum really dropped out with a number of indicies down 80% from their peak and the effect, in terms of shares, was considered worse than 1929.
 
87 was covered by the media in great depth. It was an "event" lasting one day with massive impact. It sticks in peoples minds. Unfortunately, people only consider this risk and not the risk a long term bear market presents. Also, it is the most recent selloff in the broad market, so there are plenty of people who experienced it still around.

1929 is the king of bears in my book.
 
money tree said:
1929 is the king of bears in my book.
Click to expand...

Yeah but the dividend yield, for those companies still paying them and there were quite a few I understand, would have been magnificent!
 

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