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Markets Sell Off – Is This a Case of Here We Go Again?
Obviously the concerns in Greece and the concerns they have over debt and the possibility of spilling over to over European countries has been the focus of the market’s attention for the last 2 weeks. This attention has overshadowed the economic and company specific news coming out of the US which has been very positive. This has resulted in investors selling down a range of assets due to these concerns. Whilst this matter is one that needs to be resolved, and I believe it will, this event whilst serious will be handled and not be a cataclysmic event. Keep in mind the worlds global economy was faced with inhalation not so long ago and we survived that. I will talk more about Euro debt crisis in next week’s blog due to be released on Tuesday.
In regards to the bigger picture markets have had a strong rally off their lows in March 2009 this very steep recovery in value needs to at some point been moderated to a more acceptable level as nothing can go on forever. Investors know this and basically get to a point where they look for an excuse to sell down to achieve this. This is the normal part of a market cycle where it tries to revert back to an “acceptable” level of value. The difficulty in trying to predict these big swings in reverting back to “acceptable” levels makes it a guessing game that is impossible to get right that is why we use low points, created by such sell offs, to buy cheap assets (notwithstanding it may get cheaper next week) because we know in 2-5 years we will have done well out of it. We are currently looking at a strategy to utilise for all our clients to be able to benefit from this opportunity whilst mitigating further downside risk without the need to contribute your own capital which we will get more info to you in the coming weeks.
Another feature of modern markets is the technology aspect which played a large role in the volatility in Wall Street’s falls that at its peak was about 10% for the day. There have been cases of incorrect trades entered for S&P index as well as Proctor and Gamble which lost at its worst some 37% during the session. If someone with fat fingers enters an incorrect trade this can have a huge flow on effect as traders lodge their trades in the computer system to execute automatically. There is also a range of computer trading systems that will trigger other transactions automatically in the event of certain market movements. One erroneous trade can result in a huge flow on effect of transactions which can cause wild movements which can then create panic from the individuals making it quite a scary proposition.
In regards to the bigger picture markets have had a strong rally off their lows in March 2009 this very steep recovery in value needs to at some point been moderated to a more acceptable level as nothing can go on forever. Investors know this and basically get to a point where they look for an excuse to sell down to achieve this. This is the normal part of a market cycle where it tries to revert back to an “acceptable” level of value. The difficulty in trying to predict these big swings in reverting back to “acceptable” levels makes it a guessing game that is impossible to get right that is why we use low points, created by such sell offs, to buy cheap assets (notwithstanding it may get cheaper next week) because we know in 2-5 years we will have done well out of it. We are currently looking at a strategy to utilise for all our clients to be able to benefit from this opportunity whilst mitigating further downside risk without the need to contribute your own capital which we will get more info to you in the coming weeks.
Another feature of modern markets is the technology aspect which played a large role in the volatility in Wall Street’s falls that at its peak was about 10% for the day. There have been cases of incorrect trades entered for S&P index as well as Proctor and Gamble which lost at its worst some 37% during the session. If someone with fat fingers enters an incorrect trade this can have a huge flow on effect as traders lodge their trades in the computer system to execute automatically. There is also a range of computer trading systems that will trigger other transactions automatically in the event of certain market movements. One erroneous trade can result in a huge flow on effect of transactions which can cause wild movements which can then create panic from the individuals making it quite a scary proposition.
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