The Next Global Crash is Inevitable - Top Economist Professor Linda Yueh (An excellent video)

12 Aug 2024 Making Money Linda Yueh is Professor of Economics at London Business School and a Fellow at Oxford. She’s written a book called The Great Crashes: Lessons from Global Meltdowns and How to Prevent Them (https://www.penguin.co.uk/books/31558... )

Chapters: 00:00-00:34 - Intro 00:34-08:23 - Why crashes are inevitable 08:23-14:00 - What causes an economic depression? 14:00-18:51 - How credible leaders stop crashes 18:51-19:36 - Vanta ad 19:36-25:30 - Lessons we haven’t learnt 25:30-30:00 - Who gets bailed out? 30:00-32:34 How often do global crashes happen? 32:34-37:42 - What’s the biggest risk today? 37:42-38:41 - Manual ad 38:41-43:06 - What can we do to stop a great crash? 43:06-46:34 - How a crash in China could have global consequences 46:34-51:51 - Why are crashes more frequent now? 51:51-56:55 - Is AI a bubble? 56:55-59:53 - Can cults of personality cause crashes? 59:53-01:04:00 - The great reset 01:04:00-01:08:34 - Could climate change cause the next great crash? 01:08:34-01:13:17 - We need to learn from history and not repeat mistakes 01:13:17-01:15:03 - Financial coaching 1:1

1929 Wall Street Stock Market Crash

Connecting Crashes, Corrections And Capitulation

Connecting Crashes, Corrections And Capitulation

Posted: Jul 30, 2010

James Hyerczyk

Investors and traders face many obstacles in their quest for profits. Throughout even the longest uptrends, investors experience declines against the main trend. These are referred to as corrections. At other times, markets correct more than expected in a short period of time. Such occurrences are called crashes. Both of these can lead to a misunderstood situation called capitulation. We’ll look at these three concepts, their connections and what they mean for investors. (To learn more about market direction, read Which Direction Is The Market Heading?)

Wall Street’s White Flag
In stark terms, capitulation refers to market participants' final surrender to hard times and, consequently, the beginning of a market recovery. For most investors, capitulation means being so beaten down that they will sell at any price. True capitulation, however, doesn’t occur until the selling ends.

When panic selling stops, the remaining investors tend to be bottom fishers and traders who are holding on for a rise. This is when the price drop flattens into a bottom. One problem with calling the bottom is that it can only be accurately identified in hindsight. In fact, many traders and value investors have been caught buying into false bottoms only to watch the price continue to plunge - the so-called falling knife trap. (Traders can try to trade this phenomenon. Check out Catching A Falling Knife: Picking Intraday Turning Points for more.)

Capitulation or Correction?
When and where a market should bottom is a matter of opinion. To long-term investors, the series of retracements inside of a long-term uptrend are referred to as corrections in a bull market. A bottom is formed after each correction. Each time the market forms a bottom in an uptrend, the majority of investors do not consider it capitulation, but a corrective break to a price area where investors want to reestablish their long positions in the direction of the uptrend. Simply put, early buyers take profits, pushing the stock low enough to be a value buy again.

An investor can tell a correction from capitulation only after the trend has turned down and the downward break has exceeded the projected support levels and established a new bottom from which to trend up again. The question should not be whether capitulation is taking place, but whether the market has, in fact, bottomed.

Connecting to Crashes
A crash is a sharp, sudden decline that exceeds previous downside price action. This excessive break can be defined in real dollars as a market percentage or by volatility measures, but a crash typically involves an index losing at least 20% of its value. (To learn more, read The Crash of 1929 – Could It Happen Again?)

A crash is distinct from capitulation in two important ways. First, the crash leads to capitulation, but the time frame of the actual crash doesn’t necessarily mean capitulation will follow immediately. A market may hit capitulation – and the bottom – months after the initial crash. Second, a crash will always end in capitulation, but not all capitulations are preceded by a market crash.

In the long view, a crash occurs when there are substantially more sellers than buyers; the market falls until the there are no more sellers. For this reason, crashes are most often associated with panic selling. Sudden bearish news or margin call liquidations contribute to the severity a crash. Crashes usually occur in the midst of a downtrend after old bottoms are broken as both short sales and stop-loss orders are triggered, sending the market sharply lower. Capitulation is what comes next. (Learn more about buying on margin and margin calls in our Margin Tutorial.)

Finding the Bottom
A bottom can occur in two ways. Short selling can cease or a large buyer can emerge. Short sellers often quit shorting stocks when the market reaches historical lows or a value area they have identified as an exit point. When buyers see that the shorting has stopped, they start chasing the rising offers, thereby increasing a stock's price. As the price begins to increase, the remaining shorts start to cover. It is this short covering that essentially forms the bottom that precedes an upward rally.

As mentioned, the emergence of a large buy order can also spook shorts out of the market. It is not until the trend turns up, however, that one can truly say that buyers have emerged and capitulation has taken place. Large buyers occasionally try to move the market against the fundamental trends for a variety of reasons, but, like Sisyphus and his boulder, their efforts will fail if the timing is wrong. In timing capitulation, investors have to choose between going long on a rally started by short-covering or getting back in when actual buying – and the bottom – has been established. (For more, see Profit From Panic Selling.)

Catching the Turning of the Trend
Technical analysis can help determine capitulation because subtle changes in technical indicators such as volume are often heavily correlated with bottoms. A surge in volume is an indicator of a possible bottom in the stock market, while a drop in open interest is used in the commodity markets. Trend indicators such as moving average crossovers or swing chart breakouts are ways that chart patterns can help identify when a bottom or a change in trend has taken place.

Tricky Terminology
Crashes and capitulations are most often associated with equities, and the language is slippery. If we use percentage moves to determine whether a crash or capitulation has taken place in the stock market, then why is a downward move of over 20% in the commodities market always called a correction rather than a crash?

Moreover, one market event can also act as a crash, correction and capitulation. For example, a gradual break from 14,000 in the Dow Jones to 7,000 can be called a 50% correction of the top, but if the market drops the last 2,000 points in a short period of time, it will be called a crash. If the Dow then makes a bottom at 7,000, it will be called capitulation.

Real-World Crashes and Capitulations
Good historical examples are the Black Mondays of 1929 and 1987. In both cases, investors ran for the exits, producing big market drops. In 1929, the drop was prolonged as bad economic policies aggravated the situation and created a depression that lasted until World War II. The crash occurred in 1929, capitulation occurred in 1932, and then the actual rally occurred despite the economic conditions at the time. (For more, see What Caused The Great Depression?)

In 1987, the drop was painful, but stocks started to climb within the next few days and continued until March 2000. Surprisingly, the sudden drop in the stock market in October 1987 was called neither a capitulation nor a crash. Other euphemisms such as "correction" were used at the time. While some people realized what had occurred, it took the media years to label the event correctly. (For related reading, check out October: The Month Of Market Crashes?)

Bottom Line
After studying price movement, one can conclude that crashes and capitulation are parts of the same process. When a bottom occurs, traders can buy into the uptrend and watch the new support and resistance zones form as they navigate the rally until the next downtrend. So for them, it represents an opportunity. Long-term investors can also benefit from capitulation by getting into value stocks at extremely low prices. So, even though crashes, corrections and capitulations are bad news for investors holding the stock, there are still ways to profit. (Should you get out of a stock after a drop? Read When To Sell Stocks and To Sell Or Not To Sell for more.)

by James Hyerczyk
James A. Hyerczyk is a registered commodity trading advisor with the National Futures Association. Hyerczyk has been actively involved in the futures markets since 1982 and has worked in various capacities within the futures industry, ranging from technical analyst to commodity trading advisor. Using Gann theory as his core methodology, Hyerczyk incorporates combinations of pattern, price and time to develop his daily, weekly and monthly analysis. Hyerczyk is a member of the Markets Technicians Association and holds a master's degree in financial markets and trading from the Illinois Institute of Technology.


Read more: http://www.investopedia.com/articles/analyst/080702.asp#ixzz1ZzbPyTOR

The Crash of 1929 & The Great Depression (PBS)

1929 Wall Street Stock Market Crash

The most devastating stock market crash in the history of the United States;
Its from my favorite documentary by PBS - New York.

This particular part about Wall Street crash of 1929 is from episode 5 of the series with title: Cosmopolis

There are lots of archive photos, footages and drawings throughout the series and in my opinion it was great work done with finding them.

1929 Stock Market Crash

If stock markets or stocks crash, WHO will benefit the most?

Those who bought during bubbles become paupers during crashes.

Those who bought during crashes become millionaires when the market reverses.

Wealth is destroyed by bubbles and created from crashes.

Your potential returns are a function of price you paid for the stocks offered by the market.

Those who will be investing for a long time will like the stock market when it is on CHEAP SALE.

Those who need to cash out significantly for various reasons during crashes will be the losers.

Reap the benefits of market volatility

Reap the benefits of market volatility

When stocks are collapsing, worst-case scenarios loom large in investors' minds. On May 6, 1932, after stocks had plummeted 85% from their 1929 high, Dean Witter issued the following memo to its clients:

"There are only two premises which are tenable as to the future. Either we are going to have chaos or else recovery. The former theory is foolish. If chaos ensues, nothing will maintain value; neither bonds nor stocks nor bank deposits nor gold will remain valuable. Real estate will be a worthless asset because titles will be insecure. No policy can be based upon this impossible contingency. Policy must therfore be predicated upon the theory of recovery. The present is not the first depression; it may be the worst, but just as surely as conditions have righted themselves in the past and have gradually readjusted to normal, so this will again occur. The only uncertainty is WHEN it will occur.... I wish to say emphatically that in a few years present prices will appear as ridiculously low as 1929 values appear fantastically high."

Two months later the stock market hit its all time low and rallied strongly. In retrospect, these words reflected great wisdom and sound judgment about the temporary dislocations of stock prices. Yet, at the time they were uttered, investors were so disenchanted with stocks and so filled with doom and gloom that the message fell on deaf ears. Investors often overreact to short-term events and fail to take the long view of the market.

1987 Crash v.s. 1929 Crash

Despite the drama of the October 1987 market collapse, which often has been compared with 1929, there was amazingly little lasting effect on the world economy or even the financial markets. Because this stock market crash did not augur either a further collapse in stock prices or a decline in economic activity, it probably will never attain the notoriety of the crash of 1929. Yet its lesson is perhaps more important: Economic safeguards, such as prompt Federal Reserve action to provide liquidity to the economy and ensure the financial markets, can prevent an economic debacle of the kind that beset our economy during the Great Depression.

This does not mean that the markets are exempt from violent fluctuations. Since the future will always be uncertain, psychology and sentiment often dominate economic fundamentals. As Keynes perceptively stated 60 years ago in The General Theory, "The outstanding fact is the extreme precariousness of the basis of knowledge on which our estimates of prospective yield have to be made." Precarious estimates are subject to sudden change, and prices in free markets will always be volatile. But history has show that investors who are willing to step into the market when others are panicking to leave reap the benefits of market volatility.

1931 and 2008: Will Market History Repeat Itself?

THE INTELLIGENT INVESTOR
NOVEMBER 22, 2008
1931 and 2008: Will Market History Repeat Itself?
By JASON ZWEIG

Over the two weeks ended Nov. 20, 2008, the Dow Jones Industrial Average fell 16%. Over the two weeks ended Nov. 20, 1931, the Dow fell 16%.
If you think that is scary, consider this: In the final five weeks of 1931, the Dow fell 20% further. Then it went on to lose yet another 47% before it finally hit rock-bottom on July 8, 1932.

It is vital to realize that markets are never under some obligation to stop falling merely because they have already fallen by an ungodly amount. It also is vital to explore how bad the worst-case scenario can get and to think about how you would respond if it comes to pass.
When it comes to worst-case scenarios, 1931-1932 is it. When the Dow finally stopped going down, in July 1932, it had lost 88% in 36 months. At that point, only five of the roughly 800 companies that still survived on the New York Stock Exchange had lost less than two-thirds of their value from their peak in 1929.
Look back at issues of The Wall Street Journal from 1931, as I did this week, and you may get the chills comparing it to today. "When the [automotive] industry in the near future resumes operations," declared one front-page article on Nov. 9, "it will enjoy the benefits of substantial reductions in labor costs."
The U.S. economy, as measured by gross national product, shriveled by 14.7% in 1931. Although no one expects the economy to grow in the fourth quarter of this year, it is flat year to date and shrank by "only" 0.3% in the third quarter. In 1931, one out of every six Americans was unemployed; today, one in 16 is out of work.
I don't foresee another Great Depression, but I am under no illusion that it can't happen. My parents and grandparents lived through it, and their memories of it have been branded on my brain.
If we are going into another depression, then a residual holding in stocks will be the least of your problems. Depressions hamstring nearly all forms of wealth, not just stocks. From 1929 through 1937, cash earned a compound annual return of 0.7%; intermediate-term bonds, only 4.4%.
None of us can control what the markets do to us. But we can control how we handle money, and we need to learn from our parents and grandparents who survived the Great Depression.
My grandfather was one of those people. An immigrant who bought a farm outside of Albany, N.Y., he literally became a horse trader. He bought wild horses from the Sioux in Montana for $1 apiece, transported them in a railcar to Albany and sold them for $10 each -- after his sons, whose labor cost him nothing, broke and tamed the horses.
In November 1931, my father was 15 years old. As the youngest of three brothers, he was stuck with the worst chore: fetching water at 5 a.m. He had to hang two buckets onto a shoulder yoke, fill them laboriously from the hand-powered water pump near the barn, then lug them back into the house. On winter mornings, the water would freeze on contact, and his trouser legs would creak and clatter as he carried the buckets across the snow.
Later that winter, my grandfather bought a gasoline-powered pump. The next morning, my father started the pump and filled the first bucket, excited at how easy his ordeal had become. The next thing he knew, his feet were dangling off the ground and my grandfather's fist was in his chest, pinning him against the barn wall. Terrified, my dad gasped, "Pop, what did I do?" The engine of the pump was going "ka-thump, ka-thump." My grandfather growled, "You hear them thumps? Every one of them thumps is a nickel!"
He was furious that my father had not turned off the engine between buckets.
I'm going to take a chance and hang onto my stocks. But I'm going to make sure, over the months and years to come, that I turn down the thermostat.
Email: intelligentinvestor@wsj.com

http://online.wsj.com/article/SB122731594413349829.html