October crashes

October crashes

The U.S. economy is going to face a forthcoming and hostile threat. The financial projections indicate that the stock market will buckle -- I'm talking about a potential 10% loss in a single day of trading. The market will bear the brunt of the attack. You could see the major U.S. indexes lose half of their value -- or more. The U.S. government is fully aware of the threat -- yet it chooses to do nothing about it.

On Oct. 1 US is going to suffer an extremely destructive financial event, a disastrous one-day loss in the economy this has happened only thrice in the history.

·        Great Depression: October 28 & 29, 1929 --

·        "Black Monday" : October 19, 1987,

Let me explain what i figured out...

Debt Ceiling:

In July and August US had an earthquake & a storm in the same week. Congress tried its best to lead the U.S. economy but US Faced government-spending limit earlier than expected, federal debt ceiling were raised due to this crazy weather event. But it didn't matter to investors at that time. The market remained bullish, this whole thing ended in an awful announcement from Standard & Poor's on Aug. 5, 2011:

“A downgrade in the U.S Credit rating.”

The credit of the United States was called into question for the first time. Although it was from AAA+ to AA+, it was a major announcement reflecting that the effectiveness, stability and predictability of American policymaking and political institutions have weakened.

As soon as the news spread Dow dropped 650 points pertaining to a nearly 5.5% loss in one day. The Dow lost 11.6% of its value, over a 10-day period in the beginning of August, the largest loss since October 2008's meltdown.

“History repeats itself, first as tragedy, second as farce.”

Karl Max

History is going to repeat itself, this time the results could be more devastating. The White House expected that on Sept. 30, 2012, U.S. government debt will be $16.3339 trillion."

But Congress is well short, nearly by two months.

That means US is going to hit the debt ceiling in early October... With a lot of government funds going out on the first of the month, it's likely it’ll hit the ceiling. Extended emergency unemployment benefits and the Medicare doc fix have already increased U.S. borrowing more than expected.

If we see the history the stock market was drastically hurt by the debt ceiling provision. So, what do you expect will happen this time????? -- in the last month of the election?

Last year, S&P dropped the U.S rating because of the wobbly government. I doubt, its view will not be different this year too.

According to CNNMoney:

"Ratings agencies have made clear it would be a negative for the U.S. credit rating if lawmakers simply canceled some of the cuts and didn't offset them with other budget cuts."

The question here is that

ʡ        What will be the other two ratings agencies, Moody's and Fitch, point of view?

ʡ        Could S&P downgrade U.S. debt any further?

The market is just waiting for a real time bad news to shift from a steady into full-scale bear market mode.

The stock market could see a potential double-digit decline in Oct., after US reaches the debt ceiling, -- making it one of the largest losses in history.

U.S is on the verge of the largest tax increase in history!!...

As a result of the financial distress, a new tax rate will go into effect at the end of this year. It will increase. SmartMoney and The New York Times have dubbed it "taxmageddon" for the negative impact it will have on the economy.

Rise in taxes leads to slow down in the economy --" These tax hikes will affect not only very rich, Middle-class citizens will suffer, as well.

But this has nothing to do with the stock market...There are a some other provisions in these tax hikes that will punish investors and corporations and sink down the stock market.

·        Long-term capital gains taxes will go up to 60%...

·        Tax on dividends could triple for some Americans.

These tax implications will obstruct the stock market and shred it of its value. Money will pour out in multitudes. We expect to see high trading volumes in the form of massive sell-off creating a panic as everyone will be trying to get out of the door at the same time.

Blue-chip stocks -- especially ones that pay steady dividends -- are the targets of taxmageddon.

Everything coming for the stock market is bad. In the near term, you will gain nothing by investing in stocks.

“And just like those infamous October crashes, this one-day loss will be just the start.”

Iqbal. A et al. (2011) examined the interrelationship between US stock market and emerging markets including Pakistan and India. By employing Granger Causality Test, studies showed that there is unidirectional causality from US stock exchange to Pakistan and Indian stock exchange.  

With the reference of the study it illustrates that there is short run impact of US stock exchange on Pakistan stock exchange. Which shows that, any trend flowed in US market cause and effects the Pakistan stock market as well.

http://www.waset.org/journals/ijhss/v6/v6-1-6.pdf

Investment and Portfolio Management in Relationship with Society!!!

Does Investment and Portfolio Management have a relationship with the society?

From my point of view, this subject is in direct relation with the society for its betterment. Now the question arises is How & what benefits does an individual can get from this subject?

To investigate this question there is need to understand the core values of this subject? It primarily relates to Investing and managing investments.

Investment is to put money into something to earn profit which is associated with risk.

Money should not be put idol, it should be invested somewhere either in business, or in the shape of stock, bonds etc. The prime focus of this subject is to put some light on the Investment banking, which adds to society primarily by providing valuable intermediation services. They actually linked individuals within the society and provided them capital to those who need it. This particular system allows people to invest their money directly or indirectly and along with that helps companies, government and individual to raise funds by bond selling, security sales and issuing of IPO. Investments in stocks are meant to be direct investments, individuals invest directly whereas indirect investments are in Mutual funds where asset management companies provide and develop different portfolios and manage them for their investors. This facilitates and encourages those people who are Risk inverse.

I have a strong feeling that investment is one of the rare subjects that one individual person as a whole  or as a part of an organization can be of  immense value in increasing the wealth of an individual or the wealth of corporation or an organization in which you may be associated with.

Economies those wants growing financial status requires the services of an Investment consultants or more specifically Investment bankers which play a vital role to boost the economy of the commercial sections of the society. In other words, they create more opportunities for both the employed and unemployed individuals to raise capital and make a profit. Both can invest in stock or bond or contact an asset manager who can guide him and he could earn dividend or capital gain as a plus to their regular income. Investment bankers are an essential part of any society and make society more efficient. They provide money for businesses to grow through debt and equity capital markets.

My personal experience regarding investment i want to mention here. In July 2011, an IPO of a company was issued at PKR. 25. At that time, one of my friends was doing internship in a brokerage firm. Implementing the in-depth knowledge of this subject along with the guidance from his seniors carefully analyzed the company and come up with the results that this company could be a blue chip for future. So he purchased 20,000 shares by invested PKR 5, 00,000. With the passage of time the price of the share kept on increasing and reached the highest level of PKR 80 per share.  Again using the analysis and technical aspects of the stock market, he concluded that now it’s time to get out of the market, and he sold all the shares getting a capital gain of PKR 16, 00,000.  Earning this many amounts in short period of 10 months is not an easy task. If he had not invested that money than probability is that he might have the same amount of money saved i.e. PKR 5,00,000 and in a country with inflation in double figures most probably his buying power could have been dropped down.

From the above real life example, come up with result that how he utilized his knowledge and increased his wealth. Although he had studied this particular subject but it doesn’t mean that people who don’t have this knowledge cannot benefit from it. Investment consultants are there to help the individual of the society to generate income. So what we concluded is that Investment & Portfolio Management provides an open plat form to everyone, even people with low level of incomes, job holders, students, and retired individuals can also become a shareholder of a company. It provides opportunities to the every individual of the society. People can secure their future by investing in retirement plans. It creates employment, profit generating opportunities, business, healthy returns, development of economy and all this leads to development of Society.

“What is necessary to change a person is to change his awareness of himself.”