Quote:
Originally posted by pratickm
Quote:In general, this type of knee-jerk reaction cut in interest rates is very bad policy.
Originally posted by vimpatel
Bank of Canada lending rate was cut today by 1/4% and they might add another 1/4% cut at their next announcement therefore reducing lending/mortgage rates by the big banks. Expect rates to go down very soon (if not already).
It ensures that we are looking at inflationary pressures.
It is also a clean sign that the economy is already in recession.
The central banks are hoping to avoid a full-blown depression.
The only thing worse than deflationary recession is inflationary recession
When did we last had deflationary recession? (Negative inflation)
Quote:Probably not at a global scale since the 1929 - 1930s.
Originally posted by surtalme
When did we last had deflationary recession? (Negative inflation)
As I said, inflationary recession is worse than deflationary recession.
We have had several of those, like in the 1970s and in the late 1980s.
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"Mah deah, there is much more money to be made in the destruction of civilization than in building it up."
-- Rhett Butler in "Gone with the Wind"
Location: carl sagan's universe
Posted on: 23-01-08 08:20:21
Quote:
Originally posted by pratickm
Quote:Probably not at a global scale since the 1929 - 1930s.
Originally posted by surtalme
When did we last had deflationary recession? (Negative inflation)
As I said, inflationary recession is worse than deflationary recession.
We have had several of those, like in the 1970s and in the late 1980s.
In the 1970s there was only one bear market in the US as I remember from early 73 to end 74 almost 2 years (more like 20 months if my memory serves me well- all engineered by Sheik Yamani-Shake your money- of Saudi Arabia) when the S&P dropped by 50%- but hey following that the market rebounded by over 100% so basically one was back to square one and that did take some time.
In the 80s there were 2 ugly periods. 80-82 when the S&P tumbled 30%, but regained over 200%.Here the bear hug also lasted almost 2 years
Then in the late 80s it was only a few months 3-4 that the bear hugged us all and the S&P tumbled 35% to regain 65%.
In 90 for another 3 months the bear hug was on and the markets went down 20% only to regain 400% right up to the tech bubble and the subsequent 9/11 scenario. S&P high at that time was 1527.46 and lost 50% and to date, though I think it did cross the high of 1527.46, it has for the most part traded below that high and man, people are still feeling good despite that fact.
We weathered them all- the bear periods that is
Please note above is all based on the S&P and is not indicative of anything but serves only as an informational piece and is all based on memory, though if you were to do a study everything would be mighty close.
Quote:
Originally posted by pratickm
Quote:In general, this type of knee-jerk reaction cut in interest rates is very bad policy.
Originally posted by vimpatel
Bank of Canada lending rate was cut today by 1/4% and they might add another 1/4% cut at their next announcement therefore reducing lending/mortgage rates by the big banks. Expect rates to go down very soon (if not already).
It ensures that we are looking at inflationary pressures.
It is also a clean sign that the economy is already in recession.
The central banks are hoping to avoid a full-blown depression.
The only thing worse than deflationary recession is inflationary recession
I am not a finance person, but with a layman's point of view, I fail to understand why every country's finance minister has to respond to whatever happens in the stock market? Especially, they favour the bull not the bear. There is no correction when there is prolonged bull run, but they suddenly step in when there is even a slightest drop.
In my opinion, stock market is just like any other market and stock broker's business is same as any other business - retailer/wholesaler/manufacturer etc... Whenever, there is a slump in other market like textiles for the time being in Canada, the finance minister doesnt bother to bail those businessmen
- then why should they bail the stock brokers?
Fundamentally, if your manufacturing and service sectors are performing fine, stock market will react automatically. I see this discrimatory treatment in US, Canada and India as well of late. 
Maybe the finance experts can help me explain this logic and reasoning.
Hiren
When Ben Bernanke or Bank of Canada cuts rates, banks don't necessarily lend more freely.
http://www.forbes.com/business/wallstreet/2008/01/22/fed-banks-citigroup-biz-wall-cx_lm_0122banks.html
Bernanke and company are using up their limited ammunition, but genuine problems remain with the low dollar, U.S. debt tand hat will effect Canada most.
As you can see from the above articles the underlying economic problems in U.S. cannot be fixed by a simple rate cut.
The Alberta RE market is already oversupplied and any slowdown in economic activity will make it worse. The current inventory cannot be absorbed without a significant economic growth that U.S. recession may quash.
Quote:
Originally posted by hchheda
I am not a finance person, but with a layman's point of view, I fail to understand why every country's finance minister has to respond to whatever happens in the stock market? Especially, they favour the bull not the bear. There is no correction when there is prolonged bull run, but they suddenly step in when there is even a slightest drop.
Hiren
I am not a finance person, still, my thought is, don't the stock market index indicate the state of economy? A strong market indicates a healthy economy (or booming) and investors are more willing to invest - they can raise more through IPO as well. More investment means more growth.
I guess bailing out other industries also happen - in terms to imposing import duties, excise duty cut, tax breaks etc. Only when it comes to Stock Market, it is a more widespread indicator - as opposed to a particular industry - and more immediate steps are taken. Also for the same reasons, it is discussed and highlighted much more.
IMO, stock market is a "secondary" indicator, not primary. Ideally, stocks reflect the current and future performance of companies they represent. If the company is doing fine, their stocks will do so as well. However, in practise, the index is never related to the actual performance of those companies, it is more related to speculation - sometimes to the extent of gambling and other times by way of insider trading. Whenever there is a short term rise/fall it is generally the speculators/gamblers who are effected - a serious investor never invests for a few months and most likely can sustain any small time 'jerks' in the index in either direction. Why do the finance ministry jump in to react to these 'jerks' - just to bail these speuclators/gamblers?
I have seen even in India, whenver there is a 300-500 points fall in index, immediately a parliamentary commitee is appointed to look into the reasons for the fall - but nobody bothers to check when they jump 1000 points within 1 month.
If the economy is down, bailing the stock market isnt going to help the economy....maybe I am too naive to understand this.
Hiren
