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A Picture Is Worth A Thousand Words, Stock Exchange Edition…

September 24th, 2009 · 6 Comments
Finance · Macroeconomics

I am strangely intrigued by the following visual on the levels of various stock markets over time. Courtesy of Visual Economics:

A few things that I notice:

  • Am I the only one who thinks it’s odd that the graph shows the level of the Dow Jones Industrial Average versus the level of the overall stock exchanges in other countries? There was a lot going on on the NYSE and NASDAQ that wouldn’t be very much reflected in the level of the DJIA, since the latter consists of established blue-chip rather than growth stocks.
  • As related to the above point, it’s really hard to see this dot com bubble that I am pretty sure burst spectacularly back in 2001 or so.
  • Never underestimate the power of substitutes: If you look at the market reactions immediately after 9/11, you can see that, except for Japan, all of the other markets actually saw an upswing rather than a downturn. I suppose capital has got to go somewhere, and if investors are worried about a bomb hitting the floor of the New York Stock Exchange or whatever, they’re going to find alternative places to put their money (other than under their mattresses).
  • Given the above, it’s curious that the London market seems to have been hit worse by 9/11 than the US market.
  • If you ever start to doubt the ridiculous level of interconnection that markets have, notice that people’s stupidity regarding mortgages in the US seems to have dragged the rest of the world down with them. Luckily, things seem to be rebounding to a degree.
  • Until the mortgage debacle, Shangai and Bombay were really on a tear…perhaps the banking crisis was fabricated to keep them from catching up? 🙂
  • What’s up with Japan? Call me crazy, but the Nikkei seems to be a lot more random than the rest of them…

Your thoughts?

Tags: Finance · Macroeconomics

6 responses so far ↓

  • 1 Sean // Sep 24, 2009 at 5:03 pm

    “Given the above, it’s curious that the London market seems to have been hit worse by 9/11 than the US market. ”

    Even more-so when you consider that London had terrorist suicide attacks on 7/7/05 which didn’t have too great of an impact on their market.

    …maybe something else was at play

  • 2 Don Gooding // Sep 25, 2009 at 2:45 pm

    – Agreed that DJIA is not apples to apples with the other graphs.
    – I was keenly aware of the March 2000 peak and subsequent burst; a January 2000 divorce led me to sell everything at the peak of the market – “better lucky than smart”
    – The effects of globalization, which really came together in the capital markets as well as others in the last ten years, are at least part of both the Shanghai, Bombay and Sao Paulo run-ups (not to mention significant economic liberalization during that time). It’s also led to the end of de-linking between developed and developing financial markets and thus undermines some of the benefits of global diversification.
    – Japan’s “lost decade” (which hopefully isn’t a precursor to the US’ next decade) has made them a special case (basket case?) in global financial markets.

  • 3 J S // Sep 26, 2009 at 12:32 pm

    Compare demographics with the markets.
    Drucker had a great quote about demographics underlying many trends.

    Japan’s Boomers are ten years ahead of the US Boomers. China’s Boomers are ten years younger than ours. Japan in 80’s, US in 90’s, China in 00’s.

    US in 00’s is much like US in 70’s .. parallels are Boomers then, now Boomer’s kids, are in early 20’s and college/first jobs. Not very productive .. yet.

  • 4 Carter // Oct 15, 2009 at 5:43 pm

    Sorry to rain on your parade. The mortgage market is not coming back yet. The U.S. has not even begun a recovery because of the Federal Reserve, stimulus bills, and the consolidation of banking cartels. It’s a bleak future right now. Until you see interest rates in the 15%+ range, we are not going to be out of the woods. The reason there is correlation in the stock markets up ticks is because central bank tend to inflate together. Just look at what China did to their own currency to prevent it from rising too much against the dollar this year. Shear stupidity. The dot com bubble should have busted the stock market and caused a recession, but good old Sir Alan decided to just inflate the biggest bubble the world has ever seen: real estate bubble. Remember interest rates coordinate production across time, and the federal reserve putting interest rates below their market levels for so long put America on a consumption binge which stifled long term growth potential since many long term projects were started that could never be seen through to completion due to lack of real resources in the economy. I don’t think it’s necessary to go into too much detail about America’s lack of capacity to produce goods which can be exported. Our biggest export has been dollars for way too long. Now our currency is being dumped and will decouple from the rest of the world’s currencies. Just wait until we get an audit of the Fed’s books. That’s when all hell will break loose.

  • 5 Carter // Oct 16, 2009 at 3:47 pm

    This is a great cartoon. Banks are recording record profits as their bailout money sits in the Fed Reserve collecting interest…

  • 6 Carter // Oct 16, 2009 at 3:48 pm

    Weird. I guess I don’t know how to embed images on blogs. I fail.

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