Panic Days - September, October 2001

(Written Sept 20th. Posted Oct 5th. 2001.)

This comment is posted more for those new to the market.

Occassionally the market goes into fear mode, we are in one such moment right now. For those newer to the markets, if you had ever taken the time to study past action and see some of those days in the past when the market dropped 5 or 10 percent, only to see the market eventually bounce back, you might have said to yourself, I wish I could have bought on one those days. Well this week is exactly how it felt on those days that are now history, I can say that because I was trading at those times. Not easy to buy on those days is it ? But days to buy they are – for the long term. Such buying can help improve long term returns. And the stocks to buy ? Those that fall the least, as these are the stocks more likely to be in institutional hands. Charts may also help us in looking at key mathematical points, and at the exisitng trend. See for example the posting on ABC.

The market has been through other terrorist attacks (though none as horrific) such as the 1972 Munich Olympics assualt, the previous 1993 (?) World Trade Centre bombing and other major economic stresses such as the Yom Kippur middle east war of 1973, the Iraq invasion of Kuwait 1990, and then later the British Pound / Exchange rate mechanism crisis, Asian economic downturn and Long Term Capital Management hedge fund debacle.

There was never yet an occassion when the market did not eventually surpass the prior top before the major low of the crisis. (Sept 22nd major low for the current crises a classic Gann date, and one it was quite possible to be prepared for – see posting on Gann) There is however, one slight difference to note with the current crisis, than earlier ones of the past decade; panic days in the last decade occurred within one of the biggest up markets of all time – especially on NASDAQ. Recovery of losses were seen to be very quick. This event, like the terror days of 1972 / 73 has come at the end of the decade cycle with markets in a bear (down) trend. Recovery of losses will not be so fast this time.

But recover they will; have you noted the lengths governments and Reserve Banks go to, to protect the value of assets. (Doesn’t stop the cycle though does it.) President Bush will go on announcing ‘unprecendented’ measures to move the economy along. There is only one circumstance in which it is impossible for authorities to do that, ie engineer quick recovery; when land price collapses below the value of bank loans loaned against that land price. Japan is in this situation at present. Australia experienced this in 1991. In 2001 this is not the situation in the US, so recession will not be deep or prolongued. Land price collapsing below the value of outstanding bank loans is an 18 year phenomenon, and forms very much the bulk of our business cycles forecasting class.

The situation to watch for now, occurring often about ten to twelve years into the property 18 year cycle, and something I forecast in 1994 to occur in 2004, is for interest rates to fall below the inflation rate (or inflation to rise above the interest rate). By this time, money will be pouring into the property sector. (Early 1970’s, mid 1980’s) And around in circles we go.

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