Tuesday, October 7, 2008

Is this an economic crisis ?

Fortunately, for India, this is not a crisis, just a fallout from a crisis affecting the western world. For Europe and America, it is a crisis. At voxeu.org, a paper on the crisis says:

The episodes of credit crunches and housing busts are often long and deep. For example, a credit crunch episode typically lasts two and a half years and is associated with nearly a 20 percent decline in real credit. A housing bust tend to last even longer: four and a half years with a 30 percent fall in real house prices. And an equity price bust lasts some 10 quarters and when it is over, the real value of equities has dropped to half. (Italics mine)

There is more. "The unique nature of the current financial crisis—combining a house price bust, a credit crunch, and an equity price bust—unlike any other one the US has experienced before, makes it difficult to assess its implications for the real economy."

My Notes: The bear market will not end abruptly. Bull markets start from long bases. This takes time. Once the volatility comes down, there should be many opportunities for traders.

1 comment:

piyush modi said...

What are the opportunities for a trader in a bear mkt - the sideways part of the bear mkt, which we should enter sooner than later.

Obviously, equities can never remain static, & they will gyrate, even at the fallen levels. But trading futures is a zero sum game - if i have to win, someone else has to lose. But in bear mkts, the easy targets, the retail investors have all been taken out. The easy prey, the indisciplined are all gone long out, the more savvy & disciplined ones remain - then how does one make - it gets tougher, doesnt it? Apart from writing calls, what else can one do?