History may rhyme, it doesn’t repeat itself’ (Twain). Or that, “the only thing that is constant is change” (Heraclitus). These two famous quotes apply to the financial markets as much as anything.
The way the mid and small caps in the Indian markets are trading gets to sense the equity markets are either at the start of a bull run breaking out higher or are on the verge of a break down lower.
Just correlate with layers 2007 and early 2008
- Sub Prime issue was lingering in the mouths of traders for three years before the pain struck. Now, Greece is lingering for five years. Markets did not price in the Sub Prime issue. Now markets have under-priced Greece exit.
- When the major markets peaked and languishing in ranges we have seen for about three months a surge in Indian equities (along with mid and small peaking to astronomical levels) then eventually Indian equities crashed.
September 15 2008 was one of the most extraordinary days in global financial history.A simmering credit crisis exploded into a full-blown apocalypse in the global financial sector when Lehman Brothers filed for bankruptcy.
With assets of $639bn and a further $613bn of debts, it was the biggest corporate bankruptcy in the US. The collapse of Lehman had immediate repercussions, frightening financial markets around the world, but with hindsight its demise has come to embody the failure of investment banks to adequately assess risk and invest accordingly.
Market Performance (from the close before Lehman BK) – Silver +71%, Gold +61%, S&P +58% ( For S&P the dividend are not accounted for. Including dividend it will be close to 88%)
Here is a must watch documentary of 60 min : “The West is done, it’s over! We screwed it all up. Do you want your great-grandchildren speaking Chinese 🙂
Nassim Taleb’s contribution to the world of finance are two fascinating concepts — essays really — subsequently expanded into book length. The first is Fooled By Randomness: The Hidden Role of Chance in Life and in the Markets, which describes the tendency of investors to find patterns where none exist, and to attribute to skill that which might be better credited to luck.
In one of his interview to Financial Times Taleb talks about how fragile we are. Five years on from the Lehman Brothers collapse, political and regulatory errors have made the world’s financial system even more fragile.This alarming line of thought comes from Nassim Nicholas Taleb, best known for The Black Swan, which explained markets’ difficulties in pricing extreme events for which they had no precedent.
He argues first that natural systems work by allowing things that do not work to break. This did not happen after the Lehman bankruptcy. True, letting Lehman fail was an attempt to instil discipline in the banking system, but it came too late. Continue reading “Western Economy is Overcentralised, Creating Extra Risk – Mr Taleb.”
On 15th September 2008, Lehman Brothers declared itself bankrupt. The blog was relatively new,In one of the most dramatic events of the 2007-2008 global financial crisis, the 160-year old institution collapsed due to its exposure to subprime mortgages. After Lehman’s failure, financial markets entered a period of unprecedented volatility and governments spent trillions of dollars attempting to restore confidence in the banking industry. Five years on, how has the banking industry landscape changed?
On the one hand, the risk of another Lehman-style collapse has been reduced because banks are better capitalised than they were before the crisis. For UK banks, for example, Tier 1 capital was 8% of risk-weighted assets in 2008; by 2012 this had risen to 13%. In addition, the market infrastructure is being strengthened by the introduction of central counterparties, Continue reading “The Lehman’s collapse – past 5 years”
The Securities and Exchange Board of India (SEBI) announced not long back.
Presently, mutual funds are not allowed to appoint a custodian belonging to the same group, if the sponsor of the mutual fund or its associates hold 50 per cent or more of the voting rights of the share capital of such a custodian or where 50 per cent or more of the directors of the custodian represent the interests of the sponsor or its associates.
The Board has decided that the custodian in which the sponsor of a mutual fund or its associates are holding 50 percent or more of the voting rights of the share capital of the custodian, would be allowed to act as custodian subject to fulfilling the following conditions i.e. (a) the sponsor should have net worth of atleast Rs.20,000 crore at all points of time, … Continue reading “Worth of Net worth”