A crash and a rebound like after 9/11? Really?

Discussion in 'Trading' started by stockoptionist, Jul 2, 2002.

  1. So many people have been talking about a capitulation day where everybody and their cats and dogs will sell their stocks and then the market will miraculously rebound like after 9/11. The first part may well be true: we are barely hanging there at the 9/11 levels, and a crash is very likely, but a rebound like the one we had after 9/11 crash? I'm not sure.

    Investors were anticipating a nice if not strong recovery back in September. However, by now we all know that this recovery is going to be lackluster: we aren't even sure companies will spend a good chunk of their money in investment by the end of the year. Moroever, back in September, corporate malfeascance in the likes of Enron and WCOM didn't come to light then. Right now, people expect to see blowups of this kind every couple of weeks or so. Needless to say, there is always this terrorism threat at the back of investor's minds,.... Investors have been so sickened to the core that I find it hard to believe they will jump back into stocks should a crash like that of 9/11 materialize.

    Yes, the VIX has been stretched--especially if you chart it using a Bollinger Band. But it doesn't mean that it will snap back this time around like it did after 9/11. Fear levels could remain high for months or even years to come after this possible crash.

    What I am saying is that for those contemplating playing contrarian buying after a crash like that, it might not work (well) this time around.

    Any thoughts on this?

    (BTW, I keep hearing the same brokerage refrain: "Diversify to reduce investment risks." Yeah, right, but only up to a certain point. If the US dollar keeps weakening and the government keeps issuing bonds to cover the budget deficit, there comes to a point where the bond market will also crash. REITs and gold--they are good only if not everyone puts their money in them. The problem with diversification is that it's still the same old investor's mentality--you make money by going long only. If you lose money by going long in stocks, you try to make it up by going long in other instruments. Nonetheless, diversification doesn't work if every asset you diversify into tanks. And this may well be the situation in the making--I don't want to sound alarmist.)
  2. Lavish


    Okay, then what good are the securities market regulators, in particular, the circuit breakers that halt trading after pre-determined market declines? They were triggered once since their inception. These regulations prevented a "crash" on October 27, 1997. They will be triggered if necessary to prevent a crash. According to textbooks anyway. I seriously doubt we're being taught erroneously. I'm just wondering why there's still so much talk about a "crash" as if it were possible?
  3. Lavish


    IMHO...A big, fat, FAIRY TALE.