I often hear on TV how the current market crisis is 1 in a 100 years…..
what’s the basis of this? Are they using historical market returns and seeing how many standard deviation away from the mean, etc.
Are they using Value at Risk to come to the conclusion? What are those analysts basing this on when they make such claims.
It seems somewhat odd to me when realisticly they only have like 150 years of historical returns at most. Not to mention the dynamic of the market has switched through time.
It’s catchy, that’s all there is to it. I read of this 100-year comparison a few weeks ago for the first time and since then it has been repeated by a few third rate journalists. It serves well for illiterate tabloid readers to illustrate how severe the current situation is, but no economic crisis is exactly like the other and you could find enough arguments for as against this statement. Pick a few economic facts of our times and I am sure you will find a dozen similar cases within the last 100 years. 100 years was chosen as a superlative in lack of a better comparison.
i think that people are saying it is a 1/100 year “economic crisis.” individual markets make up a small percent of the total global economy. i guess you could regress global economies by using the relationship between market value to gdp but that has it’s limitation - both current and historical data lacks accuracy and consistent/defined parameters.
i think the pundits are talking about the perfect storm nature of the economic situation. lack of credit (basis - banks aren’t lending), economic slow down (basis - negative gdp growth), and price deflation (basis - cpi). in addition to these indicators, there are some scary leading indicators. take a look at the 10 year treasury spread to cpi growth if you want to see a nasty inflationary trend. the second we figure out that we have stopped deflating the fed is going to have to do everything it can (with the exception of raising rates) to reduce the money supply.
i think that people are saying it is a 1/100 year “economic crisis.” individual markets make up a small percent of the total global economy. i guess you could regress global economies by using the relationship between market value to gdp but that has it’s limitation - both current and historical data lacks accuracy and consistent/defined parameters.
i think the pundits are talking about the perfect storm nature of the economic situation. lack of credit (basis - banks aren’t lending), economic slow down (basis - negative gdp growth), and price deflation (basis - cpi). in addition to these indicators, there are some scary leading indicators. take a look at the 10 year treasury spread to cpi growth if you want to see a nasty inflationary trend. the second we figure out that we have stopped deflating the fed is going to have to do everything it can (with the exception of raising rates) to reduce the money supply.
I agree that mostly it’s catchy journalism, but it’s probably not too far off of reality for reflecting the gravity of the situation. 100 year events can happen more than once in a 100 year interval. If you add in the global nature of the crisis, it seems likely. What’s challenging is to figure out what other crises belong in that category. The Great Depression sounds right. The 1970s inflation sounds right. Include WWII? That was certainly an economic crisis (among other crises) in Europe.
Maybe it’s closer like a 1-in-50 year event, but since no one has a strict methodology for confirming the frequency of something as general as an “economic crisis,” you pretty much have to give them some journalistic license. It’s not an academic piece, after all.
You want a quote? Haven’t I written enough already???
Actually, probably a lot of people are quoting Greenspan, who called it a “once in a century credit tsunami.”
last week a market pundit on cnbc said “one in a millenium, 60 sigma event”
what are your thoughts?
i personally believe *they* ran a detailed time-series and cross-sectional analysis across all world market data and since the big bang. the analysis was performed on a cluster supercomputer using helium cooling, on a project partially funded by the pentagon, partially by aliens. Some of the data-fitting/modeling was performed by JDV personally using TI BA II Plus bought in Delhi. The results concluded that the current market crisis is “1 in 100 years”, and the memo was distributed to selected pundits and media networks. Any other thoughts?
A financial crisis where you get a run on the currency and a run on the banks is actually pretty common in many countries (in the past you had it in emerging markets and some Developed nations… Mexico, Russia, Korea, Malasiya, Norway, etc) thus the role of IMF & the World Bank.
These crisis are often caused by the twin evils of current account deficit & fiscal deficit. Having a fixed exchange rate add on top of financial de-regulation, bad leadership, etc. In the past the cycle was kinda of the same, countries would borrow billions for investments, fix its currency to USD, and government would spend… GDP skyrocket, then the developed world (aka US, Euro & Japan) slow down and exports dry up, investors get nervous and pull out money, then the country usually run out of foreign currency reserves and go beg for help.
The US crisis is unique because the USD is the world reserve currency, if it wasn’t we would be in much deeper trouble and there really is no real alternative substitute. This actually help the US banks with their liquidity however the question whether they are solvent is another question.
Bonte Capital is really a great blog detailing the current and past financial crisis. Here is a great post concerning “Liquidity” and “Solvency”
http://brontecapital.blogspot.com/2008/07/deflation-and-bank-bailouts-in...
This is a LIQUIDITY problem….
i repeat THIS IS A LIQUIDITY PROBLEM
btw Shaq’s dance was amazing last night
fuck it, were all going to die
the worlds first ebonics speaking, wu tang listening, malt liquor drinking investment banker.
Mobius Striptease Wrote:
——————————————————-
> i personally believe *they* ran a detailed
> time-series and cross-sectional analysis across
> all world market data and since the big bang. the
> analysis was performed on a cluster supercomputer
> using helium cooling, on a project partially
> funded by the pentagon, partially by aliens. Some
> of the data-fitting/modeling was performed by JDV
> personally using TI BA II Plus bought in Delhi.
> The results concluded that the current market
> crisis is “1 in 100 years”, and the memo was
> distributed to selected pundits and media
> networks. Any other thoughts?
Why would the pentagon fund this type of research though? Would it be the federal reserve or the IMF conducting it? And howcome the CFA cirriculum never mentioned data exist since the big bang, what type of listed companies did they have back then?
i have no idea why we still have IMF or the world needs IMF..let the US treasury and the fed rule the markets
I hate that term 1 in a 100 years as if that its by pure chance that we’re in the mess that we’re in.
this statement is ridiculous. i would think that it is much more simple than we all think because its in our nature to overthink. i think they’re saying that this is the great depression and that because it is unlikely that it will happen again for the next 100 years, that it is a 1 in 100 year event. this is the 5th depressionary period in the last 200 years. the 1800s were disgusting financially. YET they were likely the best in the last million years next to the 1900s. idiots like round numbers like 100.
theblackman Wrote:
——————————————————-
> I hate that term 1 in a 100 years as if that its
> by pure chance that we’re in the mess that we’re
> in.
I agree that journalists make it sound like a probabilistic event, but it can also be that there are approximately century long cycles at work.
For example, maybe we have to wait for the last generation to suffer this to die out (the 1920s and 30s generation), and then another generation to make similar mistakes again (Reagan), and then some more time for the mistakes to get out of control and blow up in our faces (Bush II). It isn’t necessarily random, but the cycle takes about 100 years (well, 80 or so). In times when life expectancy was shorter, maybe it happened more often.
As they say on Battlestar Galactica: “all this has happened before; and all this will happen again.”
You want a quote? Haven’t I written enough already???
^ Reminds me of the book ‘It’ by Stephen King. The cycle of 30 years.