munchikana said:
Just curiosity. When was that the Fed hiked interest rate to 6%? Was the social and economical situation in USA then similar to the situation now? Did the then President of U. S. A. also had the same war mongering attitude? Whether the international trade partners of USA at that time were running huge surplus with USA just as Chaina now does? I think never in history, USA faced a tough and unrelenting partner like China of today. Dear Pankaj, can you please inform the members of this Forum on these aspects?
Hi Munchi
You have put a very relevant question and I am little late to reply.
We don't have to look far into the past to know that max Fed rate hike 6.5% ( a sharp increase of 0.5%) on May 16th 2000. Previously Fed has increased it to 6.0% on Mar 21st 2000.
Dow/Nasdaq were on a bullish run.
Regarding GDP growth
real GDP inched up during the first quarter by just 1% at annual rate, following a 7.3% jump in the prior quarter. While the second quarter sparkled again with a high growth rate, an abrupt slump of fixed residential and nonresidential investment pushed real GDP growth in the third quarter into negative territory at minus 0.5%.
US president was Bill Clinton who subsequently lost to The current incumbent Mr. Bush,Jr.
China was having trade surpluses with USA as was Japan.
Subsequently , Market tanked to start its bear run. Alan Greenspan , the then Fed Chairman, intervened to actively support the market from collapsing.
Just seven months after its 50-basis-point rate hike in mid-May 2000, the Fed started its most rapid and drastic rate-cutting binge in history to prevent a slumping economy and a collapsing stock market from hurtling the economy into a dreaded deep and long recession.
The year 2000 also brought end to IT boom fuelled mainly by the millenium bug.
Subsequently 911 happened in 2001.
wikipedia said:
After recovering from lows reached following the September 11, 2001 attacks, indices slid steadily starting in March 2002, with dramatic declines in July and September leading to lows last reached in 1997 and 1998. The dollar declined steadily against the euro, reaching a 1-to-1 valuation not seen since the euro's introduction.
Performance of Indices
Nasdaq
In 2000, the Nasdaq lost 39.28% of its value (4,069.31 to 2,470.52).
In 2001, the Nasdaq lost 21.05% of its value (2,470.52 to 1,950.40).
In 2002, the Nasdaq lost 31.53% of its value (1,950.40 to 1,335.51).
on January 1, 2003 Nasdaq gained+19.87%
on January 1, 2004 Nasdaq gained +50.01%
Dow Jones Industrial Average
In 2000, the Dow lost 6.17% of its value (11,497.10 to 10,788.00)
In 2001, the Dow lost 5.35% of its value (10,788.00 to 10,021.60)
In 2002, the Dow lost 16.76% of its value (10,021.60 to 8,341.63)
On January 1, 2003 DOW gained +14.48%
On January 1, 2004 Dow gained +25.32%
signifying bull run.
Bad news have a way of coming together at certain times.
The current concerns are getting clubbed together which is not allowing negative sentiments to subside on a global scale. On a larger scale it is observed that Indian markets are following their global counterparts. In 2003 when USA market started rallying, indian bourses also started rallying ob the back of inflow from FIIs. FII inflow was largely due to cheap yen and bullish oversea market.
Historically it is also observed that bear run tends to end when USA moves militarily to protect its interest or that of its allies. WW-I,WW-II ,Iraq and now ........????.......
Any misadventure in Middle East by countries other than USA is likely to invite USA to take protective steps
Here I must point out that for indian bourses, factors are different. We would continue to follow global market yet the growth in economy would also get reflected in its ups and downs. As earlier I have mentioned that every time we end up lower it will be on a higher loop provided that Middle East crisis is sorted out amicably, inflation remains moderate and growth rate doesn't come down below 8 to 9 %, India is not attacked by Pakistan or China, etc.
Thats a whole lot of provisio as czar would say.But then the question remains that have we seen the bottom in 2632 or we plunge below it or we are to revisit it. Global sentiments continue to remain negative. FIIs are not showing signs of relenting. Their decisions are linked to global market. When we see the visible sign of inflow(not sporadic ones) along with improved sentiments we would be able to say that now market is ready to breakout . Till such time it would be consolidating in my opinion between9500-11000 and 8500-10500. The zone between 9500-10500 would be uncertain zone.
One sure sign of impending bullishness is widespread and extreme pessimistic views. Look for that.
Pankaj
ps. typos , if any, regretted
