Yesterday was the 20th anniversary of the Black Monday Crash of 19 October 1997. Right on cue the US market fell 366 points. Are we looking at a repeat of the crash. I think not.
There are some similarities but the differences are very significant.
1. On 19 October 1997, the market crashed 22.6% (508 points0 in 1 day. This time, the drop was only 2.6%.
2. Back then the average P/E was 22x and treasury bonds were yielding 10%. Now the average P/E is 18x and Treasuries are yielding only 5%.
3. In 1997, the US$ was under attack and in order to counteract rate rises by the Bundesbank (which was fighting inflation in Germany) the Federal reserve had to raise interest rates. Now, the Fed is cutting interest rates to offset the effects of the sub-prime mess. So are all the other central banks.
One final point, even if the market falls, remember that 18 months later, the market was back up to where it was before the crash. Sit tight.
HK market was closed for a holiday on Friday 19 October 2007. The Shanghai marker recovered its nerve somewhat when the CSRC denied that it was looking to arbitrage the HK and Shanghai prices for dual liosted stocks.
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment